Union Budget 2019 - Kumaresh Ramakrishnan, Head-Fixed Income DHFL Pramerica MF

The budget for FY 20 continued to build on the work of the past five years. The focus clearly was on simplifying procedures in tax administration (making Aadhar and PAN inter-operable), streamlining existing labour laws by re-grouping them under 4 codes and attracting capital by permitting FPIs to invest in listed REITs, FPIS/ FIIs to invest in debt issued by IDFs and easing KYC norms for FPIs.

Key highlights include a growth stimulus planned through PSU bank recap of Rs.70,000 cr. NBFC sector can now down-sell loans upto INR 1 trillion to banks under a backstop from the Govt to cover first loss upto 10%.

In a bold step, the budget also announced the plan to issued Sovereign GOI bonds overseas given the lower cost of capital and given that India's sovereign external debt to GDP is less than 5%.

Fiscal deficit for FY 20 has been marginally lowered to 3.3 % (from 3.4% in the interim budget) through higher divestments at INR 105,000 cr (INR 80,000 cr last year). Marginal increases to direct taxes (raising surcharges in higher brackets) and some excise and customs is forecast to help lower the deficit.

The combination of further focusing on ease of doing business, raising revenues and fiscal discipline combined with targeted spending such as bank recap should in our view lay the ground for a gradual turn-around in the economic momentum and growth recovery.

Given the subdued inflation trajectory, the budget's decision to stick to 3.3 % on fiscal deficit and improving liquidity in our view has made duration curve attractive. Given the proposed fiscal discipline, we could expect further easing from RBI, which renders our view positive in the near to medium term.