Budget 2018 is round the corner and with this everyone – from the common man to big corporates – is busy preparing one’s Budget wishlist. Domestic brokerages expect that Budget 2018 would further establish a new layout of PSU bank recapitalisation plan. “Budget would lay out a final blueprint and roadmap of (possible) PSU bank recap plan and steps to improve the bank’s efficiency which should impact PSU stocks like SBI, PNB, as well as Bank of Baroda,” says Sharekhan. The other important thing to look out for in the budget is if Finance Minister Arun Jaitley keeps fiscal deficit under check in Budget 2018. If fiscal discipline is maintained, bond yields will cool down too further helping to reduce borrowing cost for NBFCs. All this will help lenders avoid mark-to-market losses giving boost to the banking stocks.
Already government’s decision to cut down on additional borrowing requirements from Rs 50000 crore as notified earlier to Rs 20000 crore has helped banking stocks to surge.“The move is a big positive surprise. We were mindful of the indirect tax collection falling short of expectations. In that context, this is a big surprise. It also means that a shortfall in indirect taxes is being made up (for). All in all, this is a positive surprise, which is getting reflected in the market,” Manishi Raychaudhuri, Asian Equity Strategist, Equity Cash Asia Pacific, BNP Paribas had told CNBC-TV18 in an interview.
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Even NBFCs and other financial institutions have performed well since last budget. Since Budget 2017 was presented, non-banking financial firms such as Dewan Housing Finance and Indiabulls Ventures soared 109 percent and 1,203 percent, respectively, and brokerages such as Motilal Oswal Financial Services, Edelweiss Fin, JM Financial and Centrum Capital have soared over 100 percent. Banking stocks should soar more after Budget 2018 as well.
Finance Minister Arun Jaitley last year announced that Rs 2.11 lakh crore would be infused in PSU banks over two years, of which Rs 1.35 lakh crore will be through recapitalisation bonds. The remaining Rs 76,000 crore would be from the budgetary support and market raising. PSBs have been struggling with a rise in non-performing assets (NPAs) as gross NPAs to advances in banks rose from 5.43% (Rs 2,78,466 crore) in March 2015 to 13.69% (Rs 7,33,137 crore) as of June 2017. Policy paralysis in the last leg of the previous government also stalled many projects, leading to a twin-balance-sheet problem (high bank NPAs and stressed corporates). What Budget 2018 has in store for banking stocks is still to be seen.