In the run up to the budget equity markets were flooded by a bunch of very "certain" newsbreaks (well, actually rumours) around taxation changes on capital gains, for FPIs, some sectoral developments around public sector banks and then some more. What was delivered by Finance Minister Nirmala Sitharaman was a budget largely devoid of surprises from an equity markets perspective, and focused more on continuity. Present continuous tense, as they say in grammar.
Fiscal deficit as a percentage of GDP did go down 50 basis points, as my colleague Ira had spoken about, but still above the comfort factor of the markets, which led to the bond yields reacting adversely, and the equity markets giving up their gains for a short period in the day. Keep in mind, these are markets that had rallied a few percentage points ahead of the event and therefore some profit booking would be normal.
The key announcement for me, and the markets at large, would be the FY23 capital expenditure plan, which was raised to Rs 7.5 lakh crore, an increase of 35%. To put it in perspective, the FY19 capex number was Rs 3 lakh crore. The government seems to have judged that capex will get the economy rolling, and will create much needed jobs—something that might add to their political capital as well. It showed in the way the markets gave a thumbs up to potential beneficiaries, with stocks like Larsen and Toubro Ltd., Honeywell Automation Ltd. and Siemens Ltd. ending at the highs of the day. Data centres to be given infrastructure status also helped these stocks, as also some land bank owners. There was some other small tinkering with duties on chemicals, but those were not very large announcements.
The other piece where the math is a bit confusing is the divestment target for this year and next. Both are lower than expected raising questions about the timing of the Life Insurance Corp. of India's initial public offering. Keep in mind, the perceived size of the IPO at above Rs 70,000 crore is as much or higher than the divestment target for each of the years. But, as finance ministry officials noted in the media briefing, a lower target does not limit the FM from outdoing it. If that does happen, markets would be delighted, because most experts suggest that with the tax revenue buoyancy underway, the current capex and other targets don't look out of reach.
Budget notwithstanding, a bunch of things have happened and landmarks have been reached. India's exports for FY22 will come very close to $400 billion, and her share in world exports is approaching 2%—the highest ever. Mind you, we have probably just scratched the surface of the China+1 strategy of the world.
Shark Tank is not the only indicator of new businesses, as new business registrations in the manufacturing sector are up 2x since 2019.
The digital ecosystem now enables every Indian in the nook and corner of the country to participate in the equity culture by being able to transfer funds digitally and being able to transact digitally.
The budget then, and rightly so, should become a statement of accounts and not an event that throws up surprises, so as to enable business momentum continuity, and one would reckon the finance minister did that with aplomb.
All eyes now on the nature and execution of the spend and the reform journey continuing, irrespective of the state election outcomes. India is likely to be the fastest growing major economy in FY23, and if the budget delivers on the capex plans in the correct fashion, no reason why some of that growth cannot be carried forward in 2023. That is what the bulls will be hoping for, for the externalities are hostile, and if flows continue their outward journey and the global multiples come off with higher inflation and interest rates, then Indian markets need all that growth and more. On that front, Mr Market says, "Well done, Madam Finance Minister."
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