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SBI, Hero Moto, Asian Paints, Escorts, Polycab, Dixon Tech to Amber Enterprises II Coverage reforms more likely to proceed even with restricted fiscal area says Axis Securities

Even if past budgets have disappointed the stock markets more often, the finance minister has promised a landmark budget for fiscal year 22. Groundbreaking or not, the budget for fiscal year 22 will be historic in the face of an unprecedented pandemic that has caused huge economic losses. India coped with the pandemic much better than many developed countries, and the government-borne costs were manageable.

The finance minister was clear about spending on investment to revitalize the economy and create jobs. At this point the budget seems quite constructive. However, the fiscal leeway that is allowed after considering the improving economy and better than expected tax revenues is not very significant.

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Positive budget game:

Hero Moto, Escorts, Maruti, Endurance Technology, Polycab India, Dabur, Asian Colors, SBI, Canfin Homes, Dalmia Bharat, JK Zement, Star Cement, PI Industries, Dhanuka Agritech, Amber Enterprises, Dixon Tech

Negative budget game:

ITC, Godfrey Phillip, VST Industries

The general contours of Axis Securities for the Union budget for Fiscal Year 22 are as follows:

Focus on job creation:

The government’s broad focus will be on job creation. This could lead to more impetus for infrastructure and the development of public finances if off-balance sheet structures are used. While budget expansion is a challenge given the budget deficit, which will rise to 7.5% in the current fiscal year, job creation through government activities is a necessity as private investment remains sluggish. The MSME sector is likely to gain more benefits in the upcoming budget and the relaxation in the recognition of stressful goods for MSMEs is expected to extend.

The public health and vaccination rollout will be a focus:

Public health has become very critical and further investment in public health infrastructure seems very likely. The introduction of vaccination will be a very large project with significant government spending. The effort for this mega-project and the possible financing structure could become critical aspects of the budget.

Tax structures that are expected to be retained:

Corporate taxes were lowered in 2019 and this structure is expected to be maintained in FY22 to encourage private investment. It is also likely that personal income tax structures will be maintained as additional taxes will disrupt consumption. The sales targets for fiscal year 21 were quite steep and will probably not be achieved, which will be carried over to fiscal year 22.