Scrip Standpoint

UNION BUDGET 2020 S(LAYING) THE ECONOMIC FOUNDATION (PART I)

Scrip Sanctuaries for protection from the wildlife in this jungle of Indian Equities

UNION BUDGET 2020 S(LAYING) THE ECONOMIC FOUNDATION (PART I)

UNION BUDGET 2020 S(LAYING) THE ECONOMIC FOUNDATION

Disconnect    |     Deficit     |     Debt    |    Disinvestment   |     Dividend   |    Dispute

deduce ~ reach a conclusion by thinking about the information or evidence that is available

deconstruct ~ reduce something to it’s basic elements in order to interpret it in a different way

Here’s the flow of how we have deconstructed and deduced the Union Budget 2020 for you with a focus on the ‘D’s as above offering you a perspective on each supported by government statistics on record .This a Three Part Scrip Standpoint , each of which is being send separately to reinforce the content

 

PART I    ~ DISCONNECT ~Declining Economic Growth vs Rising Record Sensex

PART II ~ DEFICIT AND DEBT ~ Dancing with Deficit and are Sovereign Bonds the Solution? PART III ~ DISINVESTMENT ~ (Dis)Comfort with Complacency of a High LIC Valuation

DIVIDEND DISTRIBUTION TAX ~ Reverting to taxing the Recipient

DISPUTE ~ Vivad se Vishwas Scheme ~ One Time Offer for resolving Direct Tax Disputes

 

MACROECONOMIC BACKDROP | SPEECH  | BUDGET AT A GLANCE

Is the Union Budget a Non Event ?

The Sensex may react on the Budget Day as graphically shown below ,but going forward shrugs off this event sentiment and moves on, making the Budget more a Non Event

On Saturday, February 1,2020 we heard the longest ever Union Budget Speech by a Finance Minister when Mrs Nirmala Sitharaman addressed the Parliament from 11 am to pm and feeling exhausted wound up taking the last two pages as read .In her Interim Budget Speech on July 5,2019 there was mention of India becoming a US $ 5 Trillion Economy by 2024/25 and that in the ongoing year itself the GDP would be US $ 3 Trillion.Her Speech on February 1,2020 had no mention of this again .On Saturday, February 1,2020 we heard the longest ever Union Budget Speech by a Finance Minister when Mrs Nirmala Sitharaman addressed the Parliament from 11 am to

The Reason has to be the stark decline in the GDP Growth Rate in the past few quarters and it is concerning that the nominal rate (Real + Inflation) for this ongoing year is just 7.5% from the 12% assumed in the first Budget Estimates last year.

The FM had a tough job balancing the Budget against a Backdrop of declining GDP growth, rising Unemployment and declining Tax Revenues .There is an imperative need to stimulate both the Drivers of our Economy, Investment in Infrastructure and Consumption. Pre Budget, the Government had addressed the first Driver to stimulate Growth by

  • Sacrificing Annual Corporate Tax Revenues to an extent of Rs 1,45,000 crs by slashing the Corporate Tax Rate ~ more on this in PART II
  • Announcing the National Infrastructure Pipeline of Rs 103 lakh Crs or US $ 1.4 Trillion over five years

The First was a Promise made in 2014 ,but in our View ,given the worrying state of our Economy, it could have been deferred for at least another two years. The Second ,may look ambitious ,but is a much needed thrust though raising concerns of funding as the outlay of US $ 1.4 Trillion equals our current Total Government Debt .The Government focus is on raising Sovereign Debt which in turn, in our view raises even more concern which we have highlighted in PART II

Macroeconomic Backdrop

Declining Economic Growth  |   Growing Unemployment   |     Rising Sensex

 

Date of Budget

(Pre Budget Date Figures)

 

Unit

 

10/7/14

 

28/2/15

 

29/2/16

 

1/2/17

 

1/2/18

Interim 1 1/2/19 Interim 2 5/7/19  

1/2/20

Financial Year 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2019/20 2019/20
GDP Rs Crs 12488000 13567192 15075429 16784679 18840731 21100607 21007439 20442233
GDP Growth Rate % 7.2 8.6 11.1 11.3 13.3 12 10.5 7.5
Unemployment Rate % 4.9 5 8.7 4.7 5.5 6.9 7.5 7.3
Fiscal Deficit/ GDP % 4.1 3.9 3.5 3.5 3.4 3.3 3.4 3.8
Sensex Level 25445 29220 23154 28743 34184 35867 39908 40723
Sensex Growth yoy % 34.9 14.8 -20.8 24.1 18.9 4.9 11.3 13.5
Repo Rate % 8 7.75 6.75 6.25 6 6.5 5.75 5.15
Exchange Rate Rs/$ 59.9 61.8 68.6 67.6 63.6 71.1 68.7 71.5
Inflation Rate % 5.9 4.9 4.5 3.6 3.4 3.4 3 4.1/7.3
Forex Reserves $ Bn 316 334 350 362 418 398 428 467
Oil Price $/barrel 102.3 49.8 33.8 52.8 64.7 53.8 56.8 51.6
Gold Rs/10g 28490 26477 29495 28823 30451 33305 34592 41230

Source : RBI,BSE,NSE,CMIE,Budget Documents,Jeena Scriptech Research

 

The Current Unemployment Rate is 7.3% .The graph below reveals a concern of a much higher Unemployment Rate (UER) in the Youth despite higher labour participation (LPR)

Union Budget 2020 at a Glance

Budget Estimate of GDP for 2020-2021 has been projected at Rs 2,24,89,420 crs assuming

a 10 % growth over the revised estimated GDP of Rs 2,04,42,233 crs for 2019-2020

 

PART I

DISCONNECT ~ Declining Economic Growth vs Rising Record Sensex

Here’s the clear Disconnect between the declining economic growth, Corporate Earnings/GDP and the rising Sensex

 

 

 

Date of Budget

 

 

Unit

 

 

10/7/2014

 

 

28/2/15

 

 

29/2/16

 

 

1/2/2017

 

 

1/2/2018

Interim 1

1/2/2019

Interim 2

5/7/2019

 

 

1/2/2020

Financial Year 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2019/20 2019/20
GDP Growth Rate % 7.2 8.6 11.1 11.3 13.3 12 10.5 7.5
Sensex Before Budget 25445 29220 23154 28743 34184 35867 39908 40723
Sensex Growth yoy % 34.9 14.8 -20.8 24.1 18.9 4.9 11.3 13.5

Jeena Scriptech Research

 

Why this Disconnect ?

Think of Equity as a Table with four Legs being Valuation, Liquidity, Momentum and Sentiment

Despite an alarming decline in the GDP Growth Rates and the Corporate Earnings/GDP Rate as above, the Sensex has risen significantly.

Stock Markets Legs of Momentum and Sentiment have been driven up by the Leg of High Liquidity Inflows from Foreign Portfolio Investment (FPI/FII) and Domestic Mutual Funds (MF) as Statistics below demonstrate.

 

The High Mutual Fund Inflows into Indian Equity in the years 2017 to 2019 can be attributed as an outcome of Demonetisation in November 2016

 

FPI Investments – Financial Year
 

Financial Year

In Rs Crs
Debt-VRR Hybrid Total
Equity Debt
2014-15 111333 0 0 277461
166127
2015-16 -14172 -4004 0 0 -18176
2016-17 55703 -7292 0 0 48411
2017-18 25635 119036 0 11 144682
2018-19 -88 -42357 0 3515 -38930
2019-20 65234 7995 2677 5301 78530
Total 951735 379912 2677 8827 1340471

 

FPI Net Investments in 2019 and 2020 up to February 6,2020
 

Calendar Year

In Rs Crs
Equity Debt Debt-VRR Hybrid Total
2019 101122 25882 8995 135995
2020 11051 -13222 2677 -46 460

Source : NSDL

US $ 14 Billion have been pumped by FPIs into Indian Equity in 2019 and in just over a month in 2020 the FPI Inflow has crossed US $ 1.5 Billion

When have we had before, in a Financial Year in this Millenium ,where on a declining GDP Growth Rate,the Sensex has significantly risen ?

 

 

Year

GDP

growth

%

Change in GDP

%

 

Change in Sensex

%

 

FPI Equity Inflows US $ Billion

1999-2000 8.8
2000-2001 3.8 -5.0 -23.8 1.4
2001-2002 4.8 1 -18.3 1.1
2003-2003 3.8 -1.02 3.5 0.4
2003-2004 7.9 4.1 72.6 5.6
2004-2005 7.9 12.4 6.1
2005-2006 7.9 41.8 6.8
2006-2007 8.1 0.2 46.3 3.5
2007-2008 7.7 -0.4 46.7 7.4
2008-2009 3.1 -4.6 -52.5 -6.6
2009-2010 7.9 4.8 79.7 15.3
2010-2011 7.5 -0.4 17.4 15.3
2011-2012 5.2 -2.3 -25.1 6.1
2012-2013 5.5 0.3 25.1 19.5
2013-2014 6.4 0.9 8.5 11.1
2014-2015 7.4 1 29.6 15.5
2015-2016 8 0.6 -5 -2
2016-2017 8.2 0.2 2 7.7
2017-2018 7.2 -1 27.5 3.6
2018-2019 6.8 -0.4 5.9 negligible
2019-2020 4.8 -2 14.08 7.3

Jeena Scriptech Research

 

The Table highlights a clear disconnect in the past three financial years from 2017-18

In our view, at 4.8% GDP Real Growth in FY 20, we are at a low base and perhaps may see a marginal decline for the next two or three quarters before we once again rebound and resume a sustainable upward momentum in the coming years

Our GDP will surely reach US $ Five Trillion, albeit not by the targeted FY 25 , and with  a prayer that the Rupee remains stable .Any significant weakening of the Rupee will take this target even further away

One thing to keep in mind is that rising Inflation restricts RBI’s ability to further reduce the repo rate in an endeavour to stimulate the economy

 

Disclosure & Disclaimer

 

 

This Report is under our free access SCRIP STANDPOINT Module.It is for the personal information of the recipient/reader.We we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. It is our Viewpoint for general information purposes only.It does not take into account the particular investment objectives, financial situations, or needs of individuals & other entities .We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither JSAAPL, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Opinions expressed are our current opinions as of the date appearing on this material only.No part of this material may be duplicated in any form and/or redistributed without JSAAPL’s prior written consent.

In case you require any clarification or have any concern, kindly write to us at : [email protected]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excerpts from Gaurav’s Blog

  Rest in Peace now Gerela Saab  ! Mr S T Gerela ex GM of BSE passed away peacefully this morning We had not met in years but he always remained at the top of my mind when it came to testimonials for this is what he had said to me over a decade ago,when […] [...]

Vedanta de-listing offer price Rs 87.50~Come on Mr Anil Agarwal ! Promoter Group of  Vedanta Ltd has proposed a voluntary de-listing at an indicative offer price of Rs 87.50~are the over 7.3 lakh minority shareholders from Alibag !? …apologies to the people of Alibag Some would term this as De-listing Duplicity ~ but I would […] [...]

This is a Riskless Reliance Industries Rights Investment Strategy for those over 2.3 Million Shareholders already holding RIL shares. It is not a recommendation to buy RIL cum rights  It’s a no brainer yet I’m just penning a brief note because some have told me they hold Reliance but are skipping the Rights ! Don’t […] [...]

 Wealth is negotiable, Health is not Your Personal Well Being is more important that the Stock Market Well Being ~ Always & more so in this unfathomable ongoing Covid-19 Reality Above’s a three minute reach out by me last night to all connected with me to reinforce this .It’s also posted on Facebook , […] [...]

Yes Bank ~ Has the RBI & MOF lost it !? SEBI really is a bystander here Controversial Lock In Clause 3 Sub Clause 8 (a) in the Scheme of Reconstruction  No wonder the Finance Minister Mrs Nirmala Sitharaman, while highlighting only selected points, even when asked for details of the Scheme,did not want to […] [...]