Don’t expect blockbuster Budget, it will be a market-neutral event: Morgan Stanley

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NEW DELHI: Dalal Street may have built in myriad expectations from the forthcoming Union Budget, but Morgan Stanley expects it to be a ‘market-neutral’ event with no major changes in the conduct of fiscal policy and a continued focus on fiscal consolidation.

The overarching issue that investors will be watching this Budget is whether the government shifts towards populism, considering the near-term growth impact of the currency replacement programme and the forthcoming elections in key states.

But history suggests the Union Budget’s influence on short-term market performance is on the wane, though expectations as measured by pre-budget performance are still important in determining what the market does after the Budget.

“Market participants will have to deal with a fair amount of volatility on the budget day, though this volatility too has been declining over the past 25 years,” Morgan Stanley said in a report.

Budget 2017-18 is likely to be positive for auto, cement, metals, consumer, internet and e-commerce, media and real estate sector, but it will be neutral for financials, information technology, oil & gas and utilities, the report said.

Here’s what to expect from Budget for these 10 sectors:

Autos: Morgan Stanley analyst Binay Singh expects the government to announce an incentive scheme to replace 15-year-plus-old trucks to encourage new sales, and incentives to encourage investments in electric or hybrid vehicles.

Cement & metals: Analyst Ashish Jain says the government is likely to outline some steps to support low-cost housing and initiatives for overall infrastructure capex that would drive cement demand.

On metals, he expects the budget to provide some details on duty rates on commodity import s/exports to maintain the competitiveness of domestic industry compared with global peers.

Consumer: Nillai Shah of Morgan Stanley expects the Budget to provide signposts from the government on measures to curb consumption of smokeless tobacco and bidis. Tax policy is expected to be benign for cigarettes.

Internet and e-commerce: Parag Gupta expects the Budget to outline steps to increase the ease of doing business for start-ups (such as removal of Angel tax), measures to incentivise digital payment and clarification on deductible expenses, which should help encourage growth.

Media: Analyst Parag Gupta expects the government to see some clarity on the direct-to-home (DTH) license fee in the budget.

Real Estate: Sameer Baisiwala expects that the government to provide clarity on taxation on REITs (such as stamp duty charges) and could lower tax incidence on equity income.

Steps to promote affordable housing are also expected through benefits to low-cost housing developers and increase in deduction limit for interest on housing loans.

Financials: Anil Agarwal of Morgan Stanley expects that the government could front-load and increase the amount considered for PSU bank recapitalisation.

This would enable PSU banks to write off bad assets and comply with Basel III requirements. Further, measures related to boost demand housing,encourage micro finance and SME lending would be a positive.

Information Technology: Parag Gupta does not expect any material change to the tax incentives for the companies in the sector under SEZ’s policy.

Oil & Gas: Mayank Maheshwari expects the government to take measures to increase use of natural gas in energy mix with an aim to promote green energy. Changes in custom duty on crude oil & petroleum products are expected. However, duty protection on crude oil is unlikely to be withdrawn.

Utilities: Girish Achhipalia of Morgan Stanley expects the government to provide details on fund allocation schemes for the power sector and extension of 10-year tax holiday for power plants until March 2020.