Budget 2022-23: Set agenda, no surprises expected this time

 

In the Union Budget 2022-23, the government is likely to move forward on the path of fiscal consolidation despite the need to increase allocations to support the rural economy and urban poor along with relief to select, stressed sectors. Additionally, the government might continue with its focus on healthcare and infrastructure-related capital expenditure and policies to kick-start the private investment cycle. Overall, the FM is set to walk a tightrope and is unlikely to pull any surprises, this time.

Pulling purse-strings – On a gradual path of fiscal consolidation

India’s fiscal deficit surged to 9.5 per cent in FY2021 and the government budgeted to bring it down to 6.8 per cent in FY2022, which looks achievable amid surging tax collections. Driven by the expected healthy growth of 25-27 per cent in net tax receipts, the government could end the fiscal 2022 with total receipts of Rs 21-21.5 lakh crore despite the steep shortfall in the divestment target of Rs 1.8 lakh crore. For FY23, therefore, the fiscal deficit target could be set at 6-6.2 per cent , resulting in net government borrowings target in range of Rs 8-8.5 lakh crore. A credible fiscal deficit target and manageable government borrowing programme would help calm bond markets and comfort equity markets as well. Any update on India’s inclusion in global bond indices would be an added positive for the bond market.

In ‘poll’ position – The rural focus

Ahead of the elections in key states, where a large portion of voters are from rural areas and agriculture-dependent, it would not be surprising to see the government ramp-up allocations to MNREGA and other such social programs to support the rural economy. Besides, it could also spell relief and/or incentives for some high-employment generation sectors such as hospitality & tourism, MSME, housing, automobiles, logistics, etc.

Pushing growth – Focus on healthcare and infrastructure

Notwithstanding political compulsions and the need for fiscal tightening, the government is likely to maintain a pro-growth stance by substantial increasing capital expenditure allocation to around Rs 6.5 lakh crore versus Rs 5.54 lakh crore in FY2022 and almost double than Rs 3.35 lakh crore in FY2020. The markets would also keenly eye allocations to the production-linked incentive (PLI) scheme and targets set for the National Asset Monetization Plan.

Capital Market – Eye no surprises this time

From the capital markets’ perspective, we do not expect any changes in capital gains tax and/ or a reduction in the Securities Transaction Tax (STT). However, unlike last year, the Budget might not positively surprise the equity markets. In terms of sectoral trends, any stimulus to drive demand could bode well for consumer stocks in the short-term. Investors are likely to stay focused on companies that would play on the expected multi-year uptrend in the property and investment cycle. In terms of portfolio strategy, we continue to prefer the two investment themes: 1) A play on the economic upcycle and; 2) Export-driven businesses. Consequently, we prefer sectors such as real estate, building materials, consumer discretionary, corporate banks, pharmaceuticals, textiles, specialty chemicals along with select stocks from industrials, automobiles/auto ancillaries and IT services segments.

(The author is CEO, Sharekhan by BNP Paribas)