An all Embracing Budget

Tue 11-Sep-2018 05:17 PM
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Backdrop

Any last full budget before elections at the center always carries a fear of being populist. The budget of 2018, being the last full budget, had raised a mild fear of walking that path. Yet, the Finance Minister did a wonderful balancing act of focusing on some key sectors while maintaining a sense of fiscal discipline. A strong foundation set up through implementation of GST and the Bankruptcy code, a strong global economy and a robust capital market also provided a healthy setting on the eve of the budget.

The Facts

We present a small summary of the budget math:







Source: Union Budget Documents: 2018-19

Discussing the budget math:

  • a) The fiscal deficit for FY19BE at 3.30 % of the GDP was in line with the street estimates.
  • b) The net borrowing of dated securities and treasury bills for FY18-19 was estimated at INR 4.07 lakh crore, a substantial drop from the INR 4.79 lakh crore for the current fiscal.
  • c) What remains debatable and what has worried the bond market, has been the projected growth of the indirect tax revenue of around 19% (a bit optimistic) and a drop in total expenditure to 10.10% (a probable underestimation), leading to an apprehension of a possible fiscal slippage

Beyond the Budget Math

  • Proposal to increase minimum support prices (MSP) for all unannounced kharif (winter) crops to be 1.5x production cost. Details are yet to be announced.
  • Tax on Long Term Capital Gains (above 1 year) on equity investments exceeding Rs. 1 lakh at the rate of 10%, without allowing any indexation benefit. However, all gains up to 31st January, 2018 will be grandfathered
  • Introduction of tax on distributed income by equity oriented mutual funds at the rate of 10%.
  • Reduction of corporate tax to 25% from 30% for companies reporting a turnover up to Rs. 250 crore in FY17. This benefit is currently available to companies with turnover less than Rs. 50 crore
  • Health Insurance Scheme covering over 10 crore poor and vulnerable families launched with a family limit up to Rs. 5 lakhs for secondary and tertiary treatment

Quo Vadis

Equity Markets

The proposed increase of MSP to 1.50X, the spend on the domestic infrastructure, and the extension of Health Insurance can give impetus to growth towards domestic rural consumption, a shift towards an organized economy and significant focus on domestic healthcare industry.

However, we believe, with the imposition of LTCG on equity shares and units of equity oriented mutual funds, there could be short term disruptions in terms of

  • FPI Flows: While we await clarity on LTCG on FPI transactions, if it is implemented, it may have an impact on incremental allocation towards India.
  • b) Domestic flows: With the introduction of DDT of 10% on equity oriented funds, there is a presumptive tax that has been imposed. This might have an impact on the flows that had come on the basis of tax free dividends in such schemes.


As we have been highlighting in our monthly newsletters, the global equities are rallying based on strong global risk on flows. Currently there are no signs of short term disruptions in global flows. Markets may continue to focus on growth and in medium term India is likely to continue to be of favour, due to better growth prospects in global comparison.

Debt Markets

The bond markets sold off by around 20bps (Ten year Sovereign at 7.60%) today after the budget announcement. While the borrowing numbers were within the street estimates, the market participants appeared to be skeptical on the budget math. The fear of the market also got compounded by the Government announcing the new MSP formula, which could potentially stoke inflation.

We have been cautious in our outlook for quite some time now. With global commodities prices and oil showing no respite, we think yield may inch up higher. We continue to believe sovereigns will outperform AAA corporate bonds in the future.

Scheme specific strategies

Our overarching strategy in our equity schemes has been towards larger allocation towards these four themes:

  • a) Home building
  • b) Premiumisation of consumption
  • c) Shift towards clean energy through increased Gas consumption
  • d) Agricultural efficiency
Mahindra Mutual Fund Kar Bachat Yojana
  • Invested in companies having valuation comfort on a relative basis
  • On a sectoral basis, we have increased allocation towards Pharma sector
Mahindra Mutual Fund Badhat Yojana
  • Focused on companies who have the potential to grow within the sector
  • The scheme is overweight/biased towards the four themes mentioned above
Mahindra Unnati Emerging Business Yojana
  • Focused on companies
  • a) With single core competency
    b) With significant market share
    c) Deleveraging balance sheets
  • Overweight on Pharma sector
Mahindra Dhan Sanchay Equity Savings Yojana
Equity portion
  • Blend of both Value and Growth companies
  • Overweight on Pharma sector and underweight on IT sector
Debt portion
  • The scheme is maintaining a Modified Duration (MD) of around 3.50 on the debt portion, which is below the MD of the CRISIL Composite Bond Fund Index.
Mahindra Low Duration Bachat Yojana

We continue to maintain an average maturity of around 200 days, which has cushioned the impact of large upward movement in yields. We intend to continue maintaining such low duration for the future.

Riskometers

Scheme This product is suitable for investors who are seeking* Riskometer
Mahindra Low Duration Bachat Yojana
• Regular income over short term
• Investment in debt and money market instruments

Investors understand that their principal will be at moderately low risk
Mahindra Mutual Fund Kar Bachat Yojana
• Long term capital appreciation
• Investment predominantly in equity and equity related securities

Investors understand that their principal will be at moderately high risk
Mahindra Dhan Sanchay Equity Savings Yojana
• Long term capital appreciation and generation of income;
• Investment equity and equity related instruments, arbitrage opportunities and debt and money market instruments.
Mahindra Mutual Fund Badhat Yojana
• Medium to Long term capital appreciation;
• Investment predominantly in equity and equity related securities including derivatives
Mahindra Unnati Emerging Business Yojana
• Long term capital appreciation;
• Investment predominantly in equity and equity related securities including derivatives of mid cap companies.
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them
Disclaimer

The information, analysis and opinions expressed here in this document are for general information only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The views expressed herein are subject to change at any time based upon market or other conditions and are current as of the date mentioned on this document. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader / user of this document. This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While utmost care has been exercised while preparing this document, Mahindra Asset Management Company Private Limited (Mahindra AMC) does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The data/statistics, if any, are given to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Neither Mahindra Mutual Fund, Mahindra AMC nor Mahindra Trustee Company Private Limited, its directors or associates shall be liable for any damages that may arise from the use of the information contained herein.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

CNo.00312

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