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Focus Expected To Be On Stimulating Growth Through Higher government Spending

The impact of the Union budget on the equity market has reduced notably over the past few years with the government undertaking most of the reforms outside the purview of the Budget. Nonetheless, market participants continue to view the budget as a catalyst stimulating growth. This time around, the Union budget 2022-23 has gained utmost importance as the advent of new Covid-19 variants has posed a short term risk to the faster economic recovery along with pushing volatility at high levels. On a positive note, The fiscal situation for FY22 appears manageable in light of a positive surprise seen in the tax revenue with buoyant collection in the last few months. At this juncture, the Union Budget 2022-23 is expected to be growth-oriented given the state election lined up in over 5 states in 2022. The consequent higher government spending on infrastructure development will help the economy gain further growth momentum. The efforts are expected to continue around Defense, Railways, and Road Infra development. We believe policy reforms such as Atmanirbhar Bharat and the PLI scheme are likely to continue in FY23 and receive further impetus.

Our broad expectations from the Union Budget 2022-23:

Focus on job creation amidst normalcy to continue: The overall focus of the budget is likely to be on job creation and investment-driven growth, implying encouraging thrust to infrastructure development. This will include public infrastructure Capex towards roads, water, metro, railways, defence, digital infrastructure, and green technologies. Though private Capex has been sluggish for the last several years, it is expected to receive a push in the upcoming budget. Moreover, the base of the PLI scheme is expected to broaden further beyond 13 sectors. Policy measures and new investment to the development of Agri and allied activities along with rural employment schemes are here to stay and are expected to gather pace moving forward.

Disinvestment and privatization likely to gain further traction:

In the near term, the government is likely to speed up the process of strategic disinvestment and PSU privatization which stood slower than expected in the past few years (LIC IPO, if not materialized in the remaining months of current fiscal, would be pushed in FY23). Asset monetization and higher disinvestment will continue to offer funding support in FY23.

Tax structures to be maintained:

Corporate taxes were reduced in 2019 and this structure is likely to be maintained in FY23 to encourage private investments. Personal income tax structures are also likely to be maintained as additional taxes will disrupt consumption. However, consumption demand may receive a positive boost via increasing the limit of the standard deduction as well as home loan tax deductions.

FY22 fiscal situation seems to be manageable:

Led by Covid-19 led disruptions, fiscal deficit stood challenging during the year and stood at an all-time high level in FY21. The situation for FY22, however, seems to be manageable given the positive surprises in the tax revenue with buoyant collection in the past several months. Keeping this in view, major slippage in the fiscal deficit is unlikely. Fiscal consolidation is expected in FY23 with the deficit for the year expected to be lower than FY22 on account of higher nominal GDP growth and improved tax buoyancy

Our Positive Budget Play: Maruti, Minda Corp, Polycab India, Canfin Homes, SBI Life, KNR Const, HG infa, Welspun India, Dalmia Bharat

Negative: ITC, Godfrey Phillip, VST Industries

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