Five trading sessions to go before the Union Budget. Sandeep Nanda of Sharekhan shares his views on, what the market is expecting, what could swing it either way, specific sectors, as well as the overall market sentiment.

Excerpts from CNBC-TV18's exclusive interview with Sandeep Nanda:

Overall from a macro perspective what could be the things which liven up sentiment post-Budget?

I think some other good news is already there. We have seen strong tax revenues, which should translate into a good below budgeted fiscal deficit for this year. We are looking at 3.6% of GDP and I think if we see to it that the next year's fiscal deficit too is in control and there is not too much populist spending or pre-election spending, that would be positive. Also I think if there are steps taken to bring down inflation and cut duties that should be a positive.

There are some specific expectations on corporate tax but that happens every time, you feel that there is a genuine case for cutting corporate tax rate this time. What are your comments?

I would say that there is no pressing need to cut corporate tax. I would actually prefer if those revenues were used for boosting infrastructure, but we have seen various interviews of the Finance Minister in the past and he has hinted at cutting down some exemptions and also cutting down on the Real Estate Investment Trust, or REIT.

So there is some possibility of that happening along with a hike in Minimum Alternate Tax, or MAT as well as a cut in some exemptions; that is a possibility.

Specifically for the market do you expect to hear something on short-term capital gains, or even as a small minority now believe, on long-term capital gains?

I would say a small increase in short-term capital gains would not be taken negatively, but that is something which worries the market, and depending on the extent of that we will have to take a call on that.

Also, the biggest thing which has been worrying the market as well as the government has been inflation. So anything which brings inflation down would be a positive. A lot of sectors have been beaten down on inflation and interest rate concerns, which could bounce back thereafter.

Just to break it down into sectors on two of them, telecom and oil and gas what do you expect to hear?

I would actually not expect to hear too much on telecom although there are sections of the market and industry who expect that the license revenue for A&B categories circles could come down. The rest of it would be duty reduction on equipment and all, which is not relatively significant but if that happens it is obviously positive but like I said there is no pressing need for it. The industry is doing well and you can use the revenues for other things.

Oil and gas we are going to continue to see restructuring of the sector some of it should have happened last year, which we didn't see. We have seen this year the government is trying to cut down oil prices, so what if you are buying expensive vegetables you can use cheaper petrol for doing that and we will see excise duty, import duty cuts coming in and also we will see the announcement for oil bonds for next year, all of which should hopefully be positive for the oil companies, cant get worse.

ITC is generally the favourite whipping boy before the Budget this time too it has been a big underperformer for the last three odd months, what do you expect for ITC, the tobacco sector as such?

If there is one company which has sort of been affected for several months because of the Budget it is the ITC and I would say that probably the worst is priced in and if

anything would happen which is not say 12.5%VAT would definitely be positive for the stock and I would say that it is sort of low risk bet on the Budget you can easily play it with little downside that is the way it is looking to me now.

Do you expect to hear anything on the interest rate sensitive like the banking industry or even real estate?

The government's biggest concern at this point is inflation and whether it is the RBI or the government we are seeing steps taken pretty much everyday on this. There are several sectors where it is easy to bring down inflation, some of them are edible oil, crude, palm oil you can see duty cuts in that because anyways duties are pretty high on that 60-70% for most edible oils you could see that is the biggest single driver of inflation right now. You could see it cut down further for metals, we have seen some steps on that we could see further steps.

Other sectors which are driving inflation are paper, rubber and plastic petrochem; you could see duty cuts on these but we are by and large expecting a custom duty cut at least to 10%.

We have also seen reports that the duty cuts could be steeper that could automatically bring down inflation and if we see possible excise duty cuts getting cut from 16 to 14 across the board that itself would also bring down inflation. That would then be a positive for banks, auto and also for sectors like cement which have seen collateral damage from inflation.

Having said all of this do you think there is any sector in this market where stocks could justify more than 5-7% kind of rally depending on any kind of tinkering with taxes which finance minister may do?

It's difficult, some people expect that in auto you could see excise duty reduction, I won't really bet on that. Like I said you could see a cut in the surcharge on corporate tax that would be positive and I think FMCG sector would by and large benefit as a sector because we will see duty cuts on inputs, possible duty cuts on finished goods and we will see lower tax.

So if you ask me which sector could by and large do okay on the Budget as a sector theme, it would probably be FMCG. I won't put auto in that category, we could see banks doing okay if the inflations measures are credible and we continue to like engineering and infrastructure stocks because we expect money to go into that.

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