By Rusmik Oza
Indian Union Budget 2021-22: As we close to the spending budget 2021, the implied vols will stay higher which indicates greater volatility in the industry. The NSE Volatility Index has risen from 18% in Mid December to 23% as of now. We count on Nifty-50 to variety among 14,000 and 15,000 till spending budget and any break-out or break-down from this variety could be noticed post spending budget. On the greater side, Nifty can go up an additional 5-7% at finest on the back of a extremely great spending budget and an upward revision in earnings led by Q3 benefits. In case spending budget disappoints then Nifty-50 can break 14,000 and go to 13,000 which is a significant break-out assistance region. We are not expecting any significant crash in the industry at this moment as the earnings print is coming sturdy which could provide a cushion on the downside.
As Nifty-50 has rallied more than 90% from the Mar’20 lows, a 10-12% correction, if it comes, could be healthier for the industry. Nifty-50 is trading at 23x on one-year Fw PE which elements in most aspect of the healthier earnings development most likely to come in FY22E. Valuations are stretched by any typical and investors have to have to be cautious. It is greater to prevent riskier bets at this juncture and book profit aspect profit in Nifty-50 goes closer to 15,000 mark. Risk-averse investors can also appear to defend their portfolios by getting PUTs of either Feb/March if Nifty-50 goes close to 15,000.
Budget 2021 Expectations
This year the standard euphoria of the spending budget is missing thanks to the currently sharp run-up in the industry and series of reforms and announcements that have currently come from the government in the final six months. The Union spending budget will seek to market the two crucial development engines, viz. social and physical infrastructure when getting mindful of the restricted fiscal space. We count on the spending budget to concentrate on AtmaNirbhar Bharat Vision, overall health, physical infrastructure, and monetary sector along with rural India. We do not count on any significant modifications in taxes. However, we do not rule out measures/incentives connected to housing and overall health. There are reports about a Covid cess even though it is unlikely to yield considerably unless rolled out to most of the taxpayers (folks & corporates). On the indirect tax front, the government could raise customs duties on completed/semi-completed goods in the PLI connected sectors.
For spending budget numbers we assume Nominal GDP development to be 13.8% in FY22. On the income front in FY22, we estimate gross tax income development at 20%, non-tax revenues at Rs2.6 lakh cr and divestments at Rs 1.5 lakh crore. We count on spending budget corporate taxes to develop 25%, private earnings tax to go up by 15% and indirect taxes to go up by 20% in FY22. On the expense front in FY22, we assume all round expenditure development at 7% (income expenditure development at 6% and capital expenditure development at 12%). On Fiscal Deficit we count on the government to finish FY21E with a Gross Fiscal Deficit/GDP (GFD/GDP) of 7.1% with consolidated GFD/GDP at 11.9%. For FY22 we model GFD/GDP to come down to 5.5% mostly on the back of sturdy nominal GDP development. We count on FY22 gross industry borrowing to be marginally decrease at about Rs.10.7 lakh cr against Rs.12 lakh cr in FY21.
Our expectation is that prices ought to harden across the curve in FY22 and on this basis we count on the 10-year bond yield to move towards 6.25- 6.75% in FY22.
(Rusmik Oza is Executive Vice President, Head of Fundamental Research at Kotak Securities Ltd. Views expressed are the author’s personal.)