Budget could positively surprise: Madhu Kela

The headline numbers show there is an expectation of over 1.5% fiscal deficit for ‘21 and around 5.5-6% fiscal deficit for ‘22. There is a room for positive surprise here as well, says market veteran Madhu Kela.

What is your gut call – are we in for a good day, bad day, flat day?
The gut call is we are in for a good day. The market is going into the Budget with very little expectations. We have had a decent correction which is what I was expecting could happen and over and above that we have had a very good set of numbers. If you look at all large cap companies — ICICI Bank, Tata Motors, Cipla — all have reported very good sets of numbers. So my gut call is that limited downside and budget could positively surprise.

Even if the budget surprises positively, do you think the overhang of global cues could be far more dangerous than a decent Budget outcome? What are the chances that we could say at the end of the day that budget achcha hai but global cues ki wajah se market gir raha hai (The Budget is good but the market is falling due to global cues)?
That is entirely possible because what is happening globally is completely unprecedented. Stocks going up from $20 to $400 and hedge funds with huge reputations built over the years getting squeezed. So global markets are jittery. We do not know what the outcome of what all that will be eventually but we need to watch out for the global market, that is for sure.

Watch out very closely and coming to our budget, this time around, there is really no expectation. There is not much talk. On the contrary, there is more of a negative talk that short-term capital gains aa jai, bad jaiga, long term capital gains bad jaiga. People are talking about some kind of cess coming in. There is weird talk of some kind of state duty coming in. I do not think any of that will happen.

The finance minister herself said that this will be a Budget to watch out for in 100 years. Once you say all of this and then you do any of this or all of it will be very-very surprising. So I think expectation is very low. Markets have already corrected significantly. I would say the individual stocks have corrected quite a lot. Corporate performance has been very, very good in the last quarter. GST numbers are very good and even the headline numbers which we track show there is an expectation of over 1.5% fiscal deficit for ‘21 and around 5.5-6% fiscal deficit for ‘22. There is a room for positive surprise here as well.

Do you expect anything on the disinvestment numbers in terms of a process apart from just the headline numbers?
They have to elaborate because if there is a significant miss on disinvestment number even last year. Rs 2,10,000 crore was envisaged and the maximum amount that could be realised was Rs 40,000-50,000 crore. We can give Covid as the main reason but what I would watch as a market participant is what is their intent to strategically divest companies.

Unless the government strategically and aggressively divests, these numbers can’t be be achieved by selling minority stakes in already existing public sector companies. So this will be actually the key thing to watch. What do they say and what is the intent and how it gets elaborated and how it will get achieved. So this will be the key thing to watch in today’s budget.

In 2018, LTCG got introduced. There was a buyback tax in 2019. In 2020, there was a dividend tax in the hands of the receiver. What is your expectation?
There could be some marginal increase somewhere for ultra rich people but I do not think that they will introduce any new tax or they will increase these taxes because they need good markets. If you have to do more than Rs 2 lakh crore of disinvestment and also if you have to revive the growth and bring back the animal spirit, which is what the CEA has been also talking about and the finance minister is intent on, doing anything which will dampen the sentiment significantly looks very difficult to me. Again this is all our gut calls and the experience which we had in 30 years but having said that, the fiscal situation is very challenging. The budget deficit which was expected to be 3.5% is going to be more than 5% even for next year. I do not think they will do anything which will really smash the sentiment.

Just the messaging and the tonality of taxation on the super rich theoretically will not go down well with the market?
It will not go down but ultimately you need revenue numbers. The budget is a fine act of balancing expenditure and revenue. You have to have revenue increased from somewhere and this year undoubtedly the government is stretched because of the fiscal stimulus which they have given for Covid. So we have to see where else can they get revenue from. Someone was telling me that there could be some kind of a turnover tax on all these new economy, e-commerce companies. They do not pay any taxation and most of them are making losses but it is entirely possible and not unthinkable that there can be a small turnover tax in those companies.

Given the limited scope to spend, what really could be in store when it comes to a push on development and infrastructure at this time?
What we are hearing is there could be two possibilities; one is they have to push infrastructure. I do not think there is any choice and we are just two years behind election also in 2024 again there will be talk of elections so we have to do something in this budget only then only it will kick off.

The other thing I hear is that there is a very strong possibility that they coming out with a development finance bank which can have a corpus of Rs 1 lakh crore. There could also be a possibility of one dedicated financial institution which is only focussing on infrastructure. None of this will actually require it to go through budgetary support. The capital could come from a lot of the institution which is not like a budgetary budgetary. So, these kind of things are possible. There is also a strong possibility of some kind of a bad bank.

If the IMF is talking about 11.5% growth of GDP, the economic survey is hinting at 11% real growth of GDP, next year all of this will not be possible unless the government and the policies are very supportive for this growth.

Does the government have room to boost consumption and how critical do you feel that is going to be in order to drive growth going forward?
When the government focuses on infrastructure, it gives room to the banks to go out and lend. Also in the last two-three years, even corporate balance sheets have been significantly deleveraged. A lot of these debt ridden companies have paid out debt very meaningfully and in core sectors. So there is a possibility that with the revival of sentiment, some amount of capex cycle revival will also happen. Net-net, I am quite positive given that the markets have already corrected meaningfully,one thing which is not in our hands or which we cannot conceive is the global market and their reaction but from the Budget side, I do not think there should be anything really negative from a market stand perspective.

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