Five things that can make or break the Street on Budget day

With foreign investors hitting the ‘sell’ button on the India story, the Street has its eyes riveted on the budget for the next key trigger. DNA spoke to key players to get a feel of the issues that could decide the mood of the markets as Pranab Mukherjee reads out his sixth budget today. Here are five things to watch out for:

Foreign direct investment
Markets are hoping the  government will announce steps to attract more foreign investment. Among the sectors hoping to tap long-term foreign capital are retail, banking and insurance.

Deficits
It is hoped that fiscal deficit would be contained at 4.8-5% of the gross domestic product next fiscal, though a minority expect it to overshoot the 5% mark. This is expected to be helped by an aggressive divestment target to meet the government’s revenue requirements, in the absence of 3G auction receipts.

For current account deficit, the government is expected to give more thrust to exports and announce some liberal policies on the export front so that the current account deficit remains at 2.5-3% levels.

Faster execution of infra projects
The street expects the government to come up with strong policy initiatives for fast-tracking execution, which may be in the form of incentivising or rewarding efficiency gains, encouraging investment in research and development, or providing tax holidays/ rebates.

Also hoped for are reforms to encourage more infra funding, which may come by relaxing the withholding tax regime (currently at 20%) to attract foreign investments through the external commercial borrowing route.

Excise duty
The market fears a rise in excise duty of 200-300 basis points and would cheer if the excise duties are not raised.

DTC/GST guidelines
Though there are no major expectations on this front as the delay in implementation is all too clear, the markets would be happy to see a timeline or clear roadmap. It is expected that the government will at least implement some tax reforms as envisaged in the Direct Taxes Code, such as withdrawing surcharge on corporate taxes and increasing the tax exemption limit for individuals to Rs2 lakh.

With contributions from Credit Suisse, Kotak Securities, Ambit Capital, Angel Broking, L&T Mutual Fund and Motilal Oswal.