Edelweiss Securities expects the FY21 fiscal deficit to be seven percent of the gross domestic product (GDP) with a promise of a glide path ahead, said the brokerage in a preview report days ahead of the Union Budget 2021, which will be announced on February 1 this year.

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"While fiscal austerity is not prescribed, the rising debt burden will limit fiscal counter-cyclicality. In that sense, the budget is likely to be a fine balancing act," the brokerage report said.

On the macro front, the brokerage said it will be on the lookout for a) an expenditure growth of at least 13 percent in FY22 b) Revenue expenditure and capital expenditure c) outlook on Non- tax revenues and disinvestments c) a credible borrowing plan.

The brokerage report also looks at the expectations from various sectors from the upcoming budget. Here's a peek into the preview report:

PSU Banks: Firstly, Edelweiss expects the government to recapitalise certain PSU banks to ensure that the banks are not starved off growth capital since the gross non-performing loans of PSU banks are expected to be up by 80 percent under severe stress due to the COVID-19.

It also believes that the formation of a bad bank will further provide a clean slate to the PSU banks by offloading the legacy stressed assets to the bad bank and reduce the burden on the government of recapitalisation to PSU banks due to these assets. The government may look to create a bad bank to combine the legacy stressed assets book with the stress debt arising from the COVID-19 crisis, it added.

FMCG: In this space, it expects the government to raise income tax deduction on the investment made under Sec 80C from Rs 1.5 lakh to Rs 3 lakh, which would increase the disposable income of taxpayers and thus improve overall consumption.

Further, increased investment in agri-infrastructure such as cold chain, warehousing, logistics and irrigation would also improve rural connectivity and thereby boost consumption demand in rural areas, it added. The government can also levy an excise tax of Rs 4,170 per 1000 sticks of cigarettes to fund infrastructure and social sector capex.

Infrastructure: Government should consider raising investment funding for the National Infrastructure Pipeline (NIP) through borrowings from overseas markets by the issuance of overseas bonds, suggested the brokerage. The industry also demands developing a municipal bond market for financing urban infrastructure as conventional fiscal transfers to urban bodies from the government are no longer sufficient, it added.

Putting in place a centrally sponsored scheme for the joint financing of infrastructure projects by central/state/local government agencies and the private sector would also be a major positive for the sector, added the brokerage. It also expects further progress on the National Investment Board which provides a single-window clearance to large-sized projects and eases the bottlenecks being faced by several projects.

Information Technology: Greater allocation towards building digital infrastructure will enable faster adoption of digital technology on the ground level in crucial areas such as education and healthcare leading to increased efficiency and greater accessibility, noted Edelweiss. Also, stronger data protection laws to protect valuable data from being misused by entities should be implemented, it added.

Pharma: As per the brokerage, increasing R&D Expenses write off from 5 years to 2-3 years will incentive the pharma sector and it will be more linked to Revenue/Dollar earning which they are planning through PLI schemes.

Real estate: The brokerage expects the government to extend the tax holiday under section 80IBA of the IT act for projects under affordable housing by 1 more year. Remove or increase stamp duty value limit of Rs 45 lakh for affordable housing under 80IBA will provide a tax benefit to a higher number of projects, it noted.

Extending the benefit under PMAY’s CLSS till March 31, 2022 and extend an additional Rs 1.5 lacs tax benefits on interest paid to all housing categories from the current restriction of affordable housing, will also improve the sentiment in the sector.

It also sees increasing of the 80C limit from the current Rs 2 lakh to Rs 3.5 lakh or provide a separate deduction for home loan principal which is now considered as part of 80C.

Cement: The brokerage expects a reduction of GST on cement from 28 percent to 18 percent and bringing in-line with other building materials. Also, increased allocation to cement intensive Infrastructure sectors like Roads, Irrigation, PMAY housing scheme, MNREGA will benefit the space.

Chemicals: Being the manufacturer of building blocks of most manufactured goods, the Chemical sector is indirectly benefitted from increased budgetary allocations in end-user industries, noted Edelweiss. Under the aegis of ‘Atmanirbhar Bharat’ any support to domestic manufacturing industries would aid the sector positively, it added. Hence budgetary allocations for PLI schemes in domestic manufacturing will be immensely beneficial for the sub-segments in the chemical sector which would lie in the value chain of those end-user industries. Also, changes in customs duty structures of bulk chemicals would aid capacity utilisation.

Insurance: Increase in the cap for FDI in insurance companies from the current 49 percent would allow capital flow in the sector along with the transmission of best practices from foreign partners, observed the brokerage. Further tax incentives for products like term insurance, health insurance and pensions will bolster demand for these products, and will also inculcate and raise awareness regarding insurance and retirement savings, which would help in longer-term demand generation, it stated.

Auto: The announcement on vehicle scrapping policy and allocation towards setting up vehicle scrapping infrastructure is one of the main things the sector is banking upon. Also, a reduction in GST on smaller cars and two-wheelers from 28 percent to 18 percent will boost the sector, said the brokerage.

(Edited by : Ajay Vaishnav)