Post the proposal, Bank of America- Merrill Lynch said, 7th Pay Commission's recommendation of a 23.6 per cent hike in salaries for civil servants will boost discretionary spending.
The Seventh Central Pay Commission (7CPC) last week proposed an increase of 23.55 per cent in the pay packet (salary and allowances) of central government employees and pensioners, which will become effective from 1 January 2016. The payout is expected in FY17.
7CPC award is likely to cost the central government Rs 1.021 lakh crore in FY17, a 23.55 per cent increase from FY16.
Post the proposal, Bank of America- Merrill Lynch said, “7th Pay Commission’s recommendation of a 23.6 per cent hike in salaries for civil servants will boost discretionary spending.”
The brokerage house maintained ‘buy’ ratings on Jubilant Foodworks, Asian Paints, Godrej Consumer Products and Dabur India and sees 21 per cent to 32 per cent upside in these stocks. It further added that these stocks’ multiples have corrected from peak, surge in EPS growth could support premium valuation.
Shares of Jubilant Foodworks, Asian Paints, Godrej Consumer Products and Dabur India closed 1.90 per cent, 2.89 per cent and 0.84 per cent up at Rs 1,461, Rs 850.75 and Rs 1231.65, respectively.
However, Dabur India closed 0.35 per cent down at Rs 273.80.
At 11.32 am, shares of Jubilant Foodworks, Asian Paints, Godrej Consumer Products and Dabur India were up 1.51 per cent, 2.46 per cent, 1.36 per cent and 1.15 per cent, respectively.
According to Kotak Institutional equities, automobiles (4W, in particular), consumer durables and real estate sectors to benefit from the gift. Although current demand conditions are somewhat subdued in the sectors, the additional funds in the hands of central and state government employees should be a positive for volume growth of the two sectors.
According to India Ratings, estimate shows that after sharing of central taxes with state governments, the central government’s net tax revenue will increase by Rs 21,000 crore in FY17. The consumption boost to the economy is estimated to be Rs 61,260 crore (0.39% of GDP) and increased household savings are estimated to be Rs 40,840 crore (0.26% of GDP).
Historically, past pay commissions have been seen to boost consumption, raise inflation and add to the fiscal burden. According to Nomura, If the recommendations are implemented then consumption to rise faster, while public investment growth to be less than previously envisaged.
(With inputs from Reuters)