Motilal Oswal Asset Management Company Ltd. (MOAMC) is a public limited company incorporated under the Companies Act, 1956 on November 14, 2008, having its Registered Office at 10th Floor, Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai - 400025.
Motilal Oswal Asset Management Company Ltd. has been appointed as the Investment Manager to Motilal Oswal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated May 21, 2009, executed between Motilal Oswal Trustee Company Ltd. and Motilal Oswal Asset Management Company Ltd.
Motilal Oswal Dynamic Fund (Div-A) - 12.5857Motilal Oswal Dynamic Fund (Div-Q) - 11.7892Motilal Oswal Dynamic Fund (G) - 13.3797Motilal Oswal Dynamic Fund-Dir (Div-A) - 12.8556Motilal Oswal Dynamic Fund-Dir (Div-Q) - 11.772Motilal Oswal Dynamic Fund-Dir (G) - 14.0039Motilal Oswal Equity Hybrid Fund - Direct (G) - 11.8324Motilal Oswal Equity Hybrid Fund - Regular (G) - 11.4483Motilal Oswal Focused 25 Fund - Direct (D) - 17.4094Motilal Oswal Focused 25 Fund - Direct (G) - 25.3606Motilal Oswal Focused 25 Fund (D) - 15.8077Motilal Oswal Focused 25 Fund (G) - 22.9413Motilal Oswal Large and Midcap Fund - Dir (D) - 9.8512Motilal Oswal Large and Midcap Fund - Dir (G) - 9.8512Motilal Oswal Large and Midcap Fund (D) - 9.6857Motilal Oswal Large and Midcap Fund (G) - 9.6856Motilal Oswal Liquid Fund - Direct (Div-D) RI - 10.0077Motilal Oswal Liquid Fund - Direct (Div-F) RI - 10.01Motilal Oswal Liquid Fund - Direct (Div-M) - 10.0357Motilal Oswal Liquid Fund - Direct (Div-Q) - 10.009Motilal Oswal Liquid Fund - Direct (Div-W) RI - 10.0115Motilal Oswal Liquid Fund - Direct (G) - 10.8771Motilal Oswal Liquid Fund - Regular (Div-D) RI - 10.0055Motilal Oswal Liquid Fund - Regular (Div-F) RI - 10.0096Motilal Oswal Liquid Fund - Regular (Div-M) - 10.0355Motilal Oswal Liquid Fund - Regular (Div-Q) - 10.0089Motilal Oswal Liquid Fund - Regular (Div-W) RI - 10.0184Motilal Oswal Liquid Fund - Regular (G) - 10.8481Motilal Oswal Long Term Equity Fund (D) - 14.3923Motilal Oswal Long Term Equity Fund (G) - 16.2428Motilal Oswal Long Term Equity Fund -Dir (D) - 15.6254Motilal Oswal Long Term Equity Fund -Dir (G) - 17.5427Motilal Oswal Midcap 30 Fund (D) - 17.9069Motilal Oswal Midcap 30 Fund (G) - 25.0661Motilal Oswal Midcap 30 Fund-Dir (D) - 18.3942Motilal Oswal Midcap 30 Fund-Dir (G) - 27.1913Motilal Oswal Multi Asset Fund - Direct (G) - 9.9928Motilal Oswal Multi Asset Fund (G) - 9.9687Motilal Oswal Multicap 35 Fund (D) - 22.1476Motilal Oswal Multicap 35 Fund (G) - 25.1389Motilal Oswal Multicap 35 Fund-Dir(D) - 22.2331Motilal Oswal Multicap 35 Fund-Dir(G) - 26.7314Motilal Oswal Nasdaq 100 FOF - Direct (G) - 17.693Motilal Oswal Nasdaq 100 FOF - Regular (G) - 17.5634Motilal Oswal Nifty 50 Index Fund - Direct (G) - 9.2797Motilal Oswal Nifty 50 Index Fund (G) - 9.2509Motilal Oswal Nifty 500 Fund - Direct (G) - 10.5271Motilal Oswal Nifty 500 Fund (G) - 10.4543Motilal Oswal Nifty Bank Index Fund - Direct (G) - 7.8343Motilal Oswal Nifty Bank Index Fund (G) - 7.7806Motilal Oswal Nifty Midcap 150 Index Fund (G) - 11.4614Motilal Oswal Nifty Midcap 150 Index Fund-Dir (G) - 11.5411Motilal Oswal Nifty Next 50 Index Fund - Dir (G) - 9.4849Motilal Oswal Nifty Next 50 Index Fund (G) - 9.4376Motilal Oswal Nifty Smallcap 250 Index Fund (G) - 11.0993Motilal Oswal Nifty Smallcap 250 Index Fund-Dir(G) - 11.177Motilal Oswal S&P 500 Index Fund - Direct (G) - 11.1639Motilal Oswal S&P 500 Index Fund (G) - 11.1305Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 9.6878Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 9.706Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 9.6947Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 9.8341Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 9.6986Motilal Oswal Ultra Short Term Fund - Dir (G) - 13.7268Motilal Oswal Ultra Short Term Fund (Div-D) - 9.6913Motilal Oswal Ultra Short Term Fund (Div-F) - 9.7017Motilal Oswal Ultra Short Term Fund (Div-M) - 9.6918Motilal Oswal Ultra Short Term Fund (Div-Q) - 9.8327Motilal Oswal Ultra Short Term Fund (Div-W) - 9.6948Motilal Oswal Ultra Short Term Fund (G) - 13.3482

Key takeaways from the Interim Budget FY19-20

Blog Blog Details
  • February 11, 2019
  • Siddharth Bothra|
  • Fund Manager, Sr. Vice President
The Government of India presented the Interim Budget for FY20F. This was the last budget by the current government before the general elections in April-May 2019. Typically a budget financial documents would go to 100page plus, while a vote on account would be 8-9 pages, this interim budget was 18pages. There was fear that this could be a populist budget with a higher rise in expenditure on rural/social welfare schemes. Despite the political pressure in the run-up to the elections, the downward slide in the fiscal deficit ratio was not disrupted. Net bond borrowings by the Government is still at FY12 levels and just a third of incremental deposits.

The interim budget had measures towards three key themes: Agri, Real estate and middle-class salaried class. 

Some of the most notable announcements were: 1) Direct annual cash transfer of Rs750b to each of 117m farmers with land holdings <5acres in three instalments of Rs2000/each. 2) Increase in tax exemption for income up to Rs0.5m for individual taxpayers, which could cost the Government Rs185b. and some sops for the Real Estate sector.

The budget provides the fiscal stimulus of ~0.36% of GDP via the direct income transfer scheme and ~0.15% via tax exemptions for income up to Rs0.5m for taxpayers and increases in the standard deduction for salaried individuals. Both these announcements should further incentivize consumption or savings. In recent times growth had started to stall with high-frequency economic data becoming negative– this ~0.5% of GDP stimulus could help arrest it and have a positive second-degree impact. 

Key measures:
Pradhan Mantri Kissan Samman Nidhi Scheme: The Rs750b income transfer scheme (Rs2000 transferred to each of 117m farmers thrice a year) -  is a policy innovation, where the response from the recipient is hard to model. They could use this guaranteed transfer to borrow against, use it to buy food/durables or repay loans. The economic implications could be different in each of these cases. The split of consumption for the bottom 60% of households is Food (60%), Fuel (10%), Clothing (7%) and Medical (5%). There is a belief that had this been a Rs500/month transfer scheme it would have broadly been used on food and would have been more effective in transferring wealth from rich to poor, which seems to be the broader objective. However, given this is coming bunched up in four months, there is a probability that this could be used for discretionary items also, but that also is likely to be low-value goods and perhaps largely unbranded. 

Middle-class sops: There was a slew of sops for the middle class and salaried people. 1) Individual taxpayers with taxable income of ~0.5m not required to pay any income tax. 2) The standard deduction for salaried people raised from Rs40000 to Rs50000. Apart from these, there were few more sops such as TDS threshold on rental income increased from Rs0.18m to Rs0.24m and exemption of income tax on notional rent on the second self-occupied house.

Key Maths for the Budget
The Budget has estimated total Receipts (ex-borrowings) at Rs20.8tr, a growth of 14% over FY19RE. This is driven by 14.4% rise in Government expenditure and only around 6.2% in Capital Expenditure.

The government has missed its fiscal deficit target for FY19 of 3.3% by 10bps at 3.4% of GDP and also kept a fiscal deficit target unchanged at 3.4% of GDP for FY20. This slippage can largely be explained by the Governments announcement of New Farm Package of Direct Benefit Transfer to small farmers.

As a result, Governments gross borrowings increased significantly to INR7.1tr up from 5.7tr in FY19. Net borrowings is expected at Rs4.7tr in FY20, up from Rs4.23tr in FY19.

Current GST monthly average run rate stands around Rs970b, even assuming a seasonal uptick in March this number is expected to around Rs986b in FY19. The assumption for FY20 is at Rs13.7tr implying a run rate of Rs1.14tr or 16% growth. There is a risk of further rationalization of GST tax brackets in FY20 and cut in GST tax rates, which pose further risk to these aggressive assumptions.

However, we feel this has a cushion in the form of moderate corporate tax revenue assumptions, which can surprise on the upside. Corporate tax revenue budget is budgeted to rise 13.3% in FY20. However, given the street expectation of earnings growth recovery in FY20 could boost corporate tax collection. There was a 8% upward revision in corporate tax collection in FY19RE vs FY19BE.

Non-discretionary and semi-discretionary spending now accounts for almost ~77% of the Centre’s total spending, implying less than 23% of spending is discretionary in nature, which exerts constraints on fiscal independence.

Divestment targets seem aggressive for both FY9 and FY20 with divestment target for FY19 at Rs80000 (Rs35000crs done till now) and Rs90000crs for FY20.

Extra-budgetary spend in FY19 was at Rs1.4tr higher than budget estimates. Rs1.24tr was increased in FCI borrowings – likely due to higher inventory and may include unfunded food subsidy. Similarly, continued reliance on small savings to fund deficits creates distortions in the plunging financial savings.

Subsidy to GDP has started rising again following 140bp fall during FY13-18. Subsidy as % of GDP peaked at 2.5% in FY13 and bottomed at 1.1% in FY18. It is now slated to increase to 1.4% in FY20.

Fiscal slippage of 10bp in FY19 and 30bp in FY20 could lead to higher Government borrowing and presents risks for interest rates on the upside. However, some part of it could be negated due to lower crude oil prices and dovish stance by key Central Governments on rate tightening and balance sheet contraction. Hence we do not feel the strengthening of yields will be disruptive for the market.

This budget breaks the trend of increasing capital expenditure that this Government had been following. Composite Capital Expenditure as % of GDP had risen sharply 3.4% of GDP to 5.2% of GDP over FY15-18. However, there has been a pause in this in this interim budget with this ratio slated to fall to 4.5% in FY20.

Sectoral beneficiaries and Our stance
Budget is positive for the consumption theme on the margin and Real Estate sector in general. However, It is marginally negative for the capital expenditure dependent plays.

Our approach to portfolio construction continues to be selective bottom-up based on QGLP framework.

We are currently more positive on turnaround plays like corporate banks and beaten down consumer discretionary sectors such as Auto.
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