"The Government is keen to have sustainable long term investment driven growth rather than a short term consumption driven growth." Here's our take on the Union Budget 2019 - 20.

1. DECODING
UNION BUDGET
2019-20

2. Key Budget Announcements
Proposition to raise FPI
limits in companies
Change in Housing Finance
Companies regulator to RBI.
Fiscal Deficit Target
revised to 3.3% of the
GDP from 3.4% earlier
A one-time government
guarantee for the purchase of
high-rated pooled assets of
financially sound non-bank
finance companies (NBFCs) up
to INR 1trn
Relaxation in FDI restrictions in
few sectors, easier KYC norms
& initiation of external
borrowing
Surcharge on 2 Individual
income tax categories – Taxable
income of between INR 2-5 cr at
3% and INR 5 cr & above at 7%.
Now the highest tax rate in
India is 42%
Proposition to the SEBI
that promoter holding
limit be brought down
from 75% to 65%
Increase in custom duties on
gold & precious metals, and
additional cess on petrol and
diesel
FPI – Foreign Portfolio Investors, FDI – Foreign Direct Investment, KYC – Know your Customer, NBFC – Non-Banking Financial Companies, RBI – Reserve Bank of India. Source: Budget Document

3. Analysis
Surcharge on 2 Individual income tax categories – Taxable
income of between INR 2-5 cr at 3% and INR 5 cr & above
at 7%. Now the highest tax rate in India is 42%*
Government guarantee for the purchase of high-rated pooled
assets of up to INR 1trn indicates that the Government seeks
to address the NBFC concerns
Relaxation of FDI restrictions on certain sectors, easier KYC norms
for FPIs & external borrowing is a positive for foreign flows
The proposal to increase public shareholding coupled with Government
willing to go below 51% for select CPSEs could lead to an increase in India’s
weightage in global indices
Government focus on fiscal discipline and low inflation indicates the
probability of further rate cuts. This measure is expected to revive growth.Focus on Long Term Growth
More incremental equity on offer
Investor Confidence
NBFC relief
Rich to get more taxed
FPI – Foreign Portfolio Investors, FDI – Foreign Direct Investment, NBFC – Non-Banking Financial Companies, CPSE - Central Public Sector Enterprises, MSCI - Morgan Stanley Capital International, KYC – Know Your Customer.
*Consult your tax advisor for more details on taxation and applicable tax

4. Impact on Sectors
Increase in minimum public shareholding
and a proposal to levy 20% tax on share
buybacks may have a negative impact on
cash rich IT Sector
IT
A Rs. 700 Bn recapitalization budget for
PSU banks and increase in free float due
to proposed rise in public shareholding
would be positive for PSU Banks
PSU Banks
No initiatives on boosting
consumption. Hence less focus
Consumption
Credit Guarantee for high rated NBFCs and
change in Housing Finance Companies regulator
to RBI shows a greater focus on the sector
NBFCs
For high end housing, higher income taxes for
individuals earning Rs. 20 Mn. Is expected to
have a negative impact
Housing

5. To Sum Up
01
02
04
03
The Budget emphasizes significantly on
improving the investment scenario
The policy steps taken to address NBFC
concerns highlights the government’s
intent of addressing structural issues
The Government is keen to have sustainable
long term investment driven growth rather
than a short term consumption driven growth
At a time when the financial sector is facing
domestic challenges, the provision for capital
infusion of State Owned Enterprises banks indicates
government intent of supporting growth

6. Our Outlook - Equity
A
B
C
E
D
Economy is expected to revive over a period
of time given the government initiatives
Our outlook on Small & Midcaps has improved.
Hence, staggered investment in Midcaps &
Smallcaps is recommended
To play the long term growth story, we recommend
investing in Multicap schemes and schemes benefitting
from special situations.
Remain neutral on equities with
improved long term outlook
Volatility is expected to remain in the
near term, as the economy is in a
transition phase. Hence, we recommend
investing in asset allocation schemes

7. Our Outlook - Debt
A
B
C
E
D
Expect spread compression to happen in
short term space in the coming quarters
We have a buy call on the credit schemes, as
they provide better carry and good margin of
safety at this juncture
Liquidity improvement is positive for the short end of
the yield curve. Long end of the yield curve should be
used for trading
We expect liquidity to continue improving
and interest rates to come down
We are positive on the 1 – 3 Year
segment of the yield curve.

8. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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