Budget should spell out reform measures: analysts

Market analysts expect the Budget 2015-16 to give tax incentives to support the Make-in-India programme by increasing public spending, clarity on pending tax matters such as retrospective laws, GAAR (General Anti Avoidance Rules) and real estate investment trusts.

Global financial company Nomura said: “For capital markets, we expect the government to formally mandate the RBI to target CPI inflation within a band of 4 per cent (+/-2 per cent) over the medium term, announce the setting up of a bank holding company, postpone GAAR and extend the withholding tax of 5 per cent on interest paid on rupee securities.”

For JP Morgan, the key priority should be reviving the investment cycle, driven by increased public spending. Sectors in focus could be road, railways, coal and power (particularly renewable energy); and providing funds for PSU banks recapitalisation, without veering off the fiscal consolidation path.

Angel Broking expects the Union Budget to lay out a medium-term plan to achieve sustainable growth. One of the key hopes from the Budget is clarity on structural reforms and a road map for investment revival. “The government is also expected to continue to adhere to fiscal prudence to attain macroeconomic balance and provide headroom for monetary easing,” it added.

“We believe this year’s Budget will be judged more on what it does at the macro level. Key answers market participants will be looking post-Budget would be: Does the Budget have the ability to kick-start economic growth? Can we expect the capex cycle to revive post-Budget? Has the real action on flagship programmes such as Make in India got rolling?,” said IndiaNivesh Securities, in a note.

Motilal Oswal expects achche din for capital market. “The capital market, in the past, has been saddled with arbitrary taxes and over-regulation. The Budget has raised expectations to more friendly measure to help improve domestic and foreign investors.”

According to ICICI Securities, the Budget should clearly lay down a road map on critical issues such as GST and reviving the capex cycle by optimum utilisation of surplus PSU cash. Further, clarity on international taxation issues such as GAAR, newer initiatives such as ‘Make in India’ and ‘Smart Cities’ along with mentioning avenues for raising long-term funds for creating infrastructure and measures to attract/increase financial saving in the economy would be the key things to watch out for in this Budget.

“This intent/road map will provide more clarity on the prerogative of the government and requisite direction to the markets, which, in turn, will raise the confidence of the private sector,” ICICI Securities added.

Macquarie said: “We maintain our expectation that the government will adhere to the path of fiscal consolidation, targeting a deficit of 3.6 per cent of GDP in FY16. We believe rather than relying on higher government spending to boost growth, the economy will benefit more from the continuous reform momentum that will improve the productivity dynamics and help India to move onto a higher growth path.”

JP Morgan said: We continue to be selective in our choice of domestic cyclicals and recommend: high quality financials with a strong liability franchise; and manufacturing sectors with low financial leverage and high operating leverage, particularly commercial vehicles and cement. We remain wary of chasing beta, as also rural discretionary consumption plays.