The Union Budget 2020 could focus on spending toward railways, defence and toward reviving sentiment in the real estate sector but the exercise would be to keep the outlays lean so that fiscal deficit does not slip beyond 3.5 per cent of GDP, a report by broking house Emkay Financials said.

It said the preceding few months have seen many announcements by the government with an intention to kickstart growth. Thus, it is understandable that expectations run high on the upcoming Budget.

"However, given the tight fiscal space, we doubt many big bang announcements could be made," it said.

The steep fiscal slippage of 48 bps in FY20 is largely due to growth slowdown and the lack of addressing sector-specific issues. The FY21 budget will probably look relatively slimmer with a deficit of 3.5 per cent of GDP. Concentration of spending would again steer toward railways, defence and toward reviving sentiment in the real estate sector, it noted.

"The shortfall in disinvestments is also likely to be Rs 46,900 crore and the target is likely to be rolled forward to FY21. Our base case does not include receipts from the telecom sector on AGR dues," Emkay said.

"Expenditure to be squeezed based on the steep shortfall in revenue receipts, we believe that the government is likely to curtail expenditure by Rs 1.8 lakh crore. Major savings are likely to emanate from food subsidy (transferred off balance sheet), lower interest payment outgo and savings generated from the PM-Kisan scheme. FY21 expenditure concentration to remain similar to that of FY20, where the budget allocation would continue to remain tilted toward railways, defence and urban infrastructure," said the report.

Gross borrowing figure is likely to be budgeted at Rs 7.5 lakh crore, i.e., growth of 5.7 per cent year-on-year. This is likely to keep the yields elevated near 6.8-7.0 per cent said the report. No big announcements but allocation could be tilted toward infra/power/real estate, than consumption boosters.

"We see a low likelihood of a personal tax rate cut, given the consumption boost would be small and transient. On the other hand, we expect announcements around power sector (Discom reforms), where implementation details on how the incentives will be structured for state discoms will be critical, infrastructure (NIP) where part of the funding could come from outside the budget and some stimulus for the real estate sector in the form of additional tax breaks for home buyers."

"In the run-up to the Budget, we could expect some excitement in stocks like L&T, NTPC and HFCs like HDFC/LICHF (however, this last set could be impacted by high govt borrowings on funding costs).