Investors are on a wait and watch mode this week as finance minister Nirmala Sitharaman will present on July 5 the first budget of the second term of the Narendra Modi government. Market analysts expect major steps by the government in the consumption and infrastructure sectors to boost the slowing economy.

Elara Capital in its research report said, “We believe the government will find it’s increasingly challenging to retain its fiscal deficit target of 3.4 percent set out in the Interim Budget for FY20 amid dwindling revenue and competing priorities for government spending.”

“Given government’s ambitious target of making India a USD 5 trillion economy by 2024, we believe some areas of spending, such as roads, piped water, housing, railways and agriculture, will remain priorities. As such the forthcoming budget may see some downward revision to tax projections for FY20 mainly under the GST head”, the report added.

It further said that the main thrust of Modi 2.0 Budget is expected to be agriculture, MSME and the water sector. We expect the BJP manifesto to guide new spending priorities. We also expect the government to lay the roadmap towards its Rs 100 trillion in infra spending, primarily roads, metro gas grids, water grids and railways.

Anand Rathi in its report said, “We expect the FY20 budget to be expansionary, boosting both consumption and investment through tax cuts and additional expenditure. With the commitment to revert to fiscal consolidation next year, we expect the Finance Minister to go for a one-off increase in fiscal deficit to Rs 8 trillion or 3.8 percent of GDP – an increase of Rs 1 trillion over the FY20 interim budget target. The report added that an increase in market borrowing of Rs 500 billion is expected.”

Commenting on the market outlook, HDFC Securities said that the markets could react initially positively to the Budget as a crucial event is out of the way and sectoral and stock-wise reactions could continue for a couple of days.

It said that PSU stocks could perform even beyond that if the measures announced are prudent, credible and achievable. After 1-2 weeks, the markets could come back to its original trajectory reacting to the global risk appetite, interest rate trends, local micro and macro developments.

Speaking on the Union Budget 2019 themes, it said that GST collection growth, rural income growth and Insolvency code progress will play as three major themes to follow in 2019-20. Private consumption is expected to stay strong; 2019 monsoon could be a concern. Overall, there are fewer negatives from this budget. Possibilities of an unexpected large positive are also limited.