This year, as in previous election years, there will be a second Budget presentation. The first one was presented as a vote-on-account in February to approve expenditures till March 2019. The second one will be presented on July 5 as a full-fledged Budget. In the earlier Budget, the government made quite a few changes in the Income-Tax slabs and other domains, keeping the ensuing General Elections in mind.
Now, the main challenge before Nirmala Sitharaman, the second female finance minister after Indira Gandhi, will be to contain the fiscal deficit target amid:
- Revenue Department’s negative outlook for direct tax collection target
- Not so encouraging GST collection figures
- Not so encouraging monsoon forecast
- Falling crude prices that are having a favourable impact
But things do not look easy for our honourable finance minister, keeping the overall dynamics in mind. Additionally, since the aim of the government is ‘home-for-all by 2022’ and fulfilment of social agendas announced in the BJP manifesto, we believe the coming Budget will have policies largely in favour of the rural people.
Empirically, these kinds of policies lead to buoyant markets in the long term. But, in the short term, there are chances of a knee-jerk reaction by market participants. The benchmark indices are already ruling at all-time highs, while the midcap indices are ruling at multi-year lows. Corporate earnings are not backing the highs and, hence, we expect volatile markets in the near- and mid-terms.
The sectors to watch out for are consumer goods and housing. Backed by a recent rate cut and expectations of a further cut in the August monetary policy, the real estate sector, corporate banks and strong NBFCs must be keenly watched.