Union Budget 2023-24 will be presented against the backdrop of a higher risk of a slowdown in developed countries. The last full Budget of the Modi government before the 2024 general elections is likely to be growth-oriented with a focus on capex, manufacturing, infrastructure and rural economy.
Budget 2023 Expectations: A roundup of what top brokerages expect for key sectors
Experts believe that the FY24 Union Budget needs to balance supporting growth in economic activity and fiscal consolidation. Let's take a look at what different experts expect from the Budget:
The key expectation from Budget 2023 is to maintain the growth path while keeping fiscal deficit and inflation in check, said Devarsh Vakil. He hopes that there isn’t any tinkering with capital gains tax in any way though current and past central governments have progressively increased taxes on capital markets. Defence, railways, capital goods, BFSI, and rural-facing sectors are likely to be in focus in the upcoming Budget while the infrastructure space will see a push, he predicted.
As India is one of the fastest-growing major economies due to a rising middle class, it is important that the Union Budget lays the groundwork for improving consumption in critical sectors. Economic expansion and development will remain in focus in this Budget. With the buoyant tax collections this year, the fiscal situation appears to be manageable. Higher spending on infrastructure development will help the economy gain further momentum. For MSMEs, some credit-boosting measures are expected to be announced.
This Budget would have the daunting task of progressing towards consolidation after the Covid related fiscal push. On the other hand, an eye needs to be kept on economic growth in an atmosphere of slowing global growth and tightening domestic financial conditions. On a strategic level, the broad reform process should continue with outlays earmarked for rural development, boosting manufacturing, employment generation, and capacity building through infrastructure. Despite this being the last Budget before general elections, we do not anticipate much in terms of tax dole-outs for the masses. For FY24E, we anticipate the Budget deficit to increase to ₹17.8 lakh crore, GFD/GDP to print at 5.9 percent.
The upcoming Union Budget will require policymakers to ensure the fiscal impulse is maximized to improve potential growth while signaling adherence to medium-term fiscal sustainability. This will require continued financial sector reforms, better resource allocation, and funding by aggressive asset sales via functional infrastructure monetization, disinvestment, and strategic sales, among others. We project FY24E GFD/GDP at 5.8 percent after 6.4 percent in FY23E, implying net and gross borrowing at whopping ₹12 lakh crore and ₹15.1 lakh crore, respectively, adjusted for Covid-GST comp. loans. The scope for a blatant populist Budget looks bleak amid moderating tax revenue, and market loans.
There is a talk about harmonizing capital gains taxes across investment instruments with respect to rates and tenors, and we need to see the government's approach toward this step. In our view, equity markets provide risk capital to entrepreneurs and should be encouraged by lower taxation. The government should encourage investors to stay invested in equities for the long term and abolish long-term capital gains. He expects railways, construction, capital goods, defense equipment manufacturers, fertilizers, and agrochemicals to be the sectors in focus for the upcoming Budget.
He also expects the government to stick to its fiscal consolidation roadmap. Any slippage to it should be for capacity creation which will elevate the long-term growth potential of our economy. Significant steps to boost investments in manufacturing by the private sector by extending PLI benefits to more sectors and a roadmap to reduce corporate tax rates would go a long way to improve employment generation, increase exports and promote economic growth.
The government is likely to give some relief to the middle class by increasing the minimum slab of taxation as inflation has eaten into the earnings in the last two years. Also, capital gains tax, which is perceived to be complex, is likely to be simplified, Bhasin said. He does not expect the government to decrease GST on items in the near future. However, if the crude prices fall from current levels, there is a scope of a reduction in union excise duty on petroleum products, giving relief to consumers in an election year. The government's total subsidy expenditure is likely to come down in FY24 as extraordinary circumstances have pushed subsidy bills to record levels in the last three years.
In the upcoming Budget, we anticipate a continued focus on PLI incentives (for new sectors), Atmanirbhar Bharat (to enhance manufacturing, and exports, while managing imports), sustainability (supply/demand push towards renewable energy and alternative technologies), and infrastructure expansion (defence, railways, ports, logistics, and roads). The government wants to encourage the adoption of the new income-tax regime, thus incentivization is likely. Fiscal support to rural India will continue (adjusting for food and fertiliser subsidies), it said.
“We will be watching for any meaningful stimulus (low probability considering fiscal constraints). FY24 Union Budget is likely to be a tightrope walk, considering its fiscal guidance, and the 2024 union elections. We estimate the fiscal deficit for FY24 at 5.8-6 percent and FY23 at 6.2 percent,” it added.
Budget Strategy by Motilal Oswal Financial Services
The Nifty index has broken the previous month’s low along with the formation of a Bearish Engulfing pattern which has a negative implication. Looking at the overall chart structure, a bounce could be sold as the recent trend got deteriorated after breaking key support of 17777-17850 zones. As of now till it doesn’t negate the structure of lower top - lower bottom, weakness could extend towards 17350 and 17200 zones while key resistances are shifting lower to 18000 marks.
The surge in volatility with a decline in prices ahead of the Union Budget suggests some sort of concern in the market. It is advised to hedge your existing long position by buying Protective Puts or initiating Bear Put Spread in Weekly or Monthly expiries. It is also advised to reduce the cost of position in delivery by writing higher strike Calls in selective F&O stocks (Covered Call) as the upside seems to be capped for time being.
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