The Union Budget of 2023 has been growth focused while maintaining fiscal prudence. The focus on capital expenditure with a total outlay of more than ₹10 lakh crore will provide significant boost to growth in the coming years. Sectors like capital goods have been doing well over the last year as the government has brought in the Production Linked Incentive (PLI) scheme and laid emphasis on infrastructure. We continue to remain bullish on capital goods as a theme for the next 2-3 years.
Also, the raising of personal tax exemption limit from ₹5 lacs to ₹7 lacs under the new regime will help in boosting the lower middle class and rural income which has been impacted over the last few years due to pandemic. We have seen lower volume growth in consumer staples companies and consumer discretionary companies catering to the rural population. However, the total relief will not be substantial given the kind of hit the rural economy has experienced.
The Pradhan Mantri Awas Yojana (PMAY) outlay for housing increased by 66% to ₹79000 crore. In our opinion this could have been greater as we know housing is a force multiplier and it helps in improving demand both for real estate and for ancillaries like steel, cement and other building materials.
Obviously being an election year, spend on agriculture was expected. Initiatives on increasing digital public infrastructure and emphasis on improving productivity is extremely important.
The government has been trying to push domestic manufacturing. Sectors like building materials will be benefitted due to higher allocation to PM Jal Jeevan mission. The sugar sector will also get more alcohol for its ethanol blending program due to reduction of custom duties on intermediate chemicals.
The government had launched the PM Gati Shakti mission to reduce the inefficiencies in the logistics sector and bring the cost of logistics to 8-9% from 13-14% of GDP. The identification of 100 critical infraprojects for ports, coal, steel, fertilizer and food grains and investment of ₹75000 crores would give boost to the logistics sector.
If premium paid on insurance policies exceeds ₹5 lacs in a year, then the proceeds from those policies will be taxable. Overall, a negative for insurance companies as it will impact the high value premium policies affecting the overall industry growth. Hence, we saw sharp correction in insurance company stocks post budget.
The joker in the pack was the capital gains tax which eventually didn’t get tinkered. Stable policy on capital gains was important to ensure that sentiments of FPIs don’t weaken further. One of the biggest positives of the budget was that there was no change in capital gains, as even a small negative change could have spooked the markets.
However, the biggest risks in the markets are the ones that are unforeseen. We saw a sharp drawdown in Adani Group stocks which ultimately brought down the broader market from the bouyant position. This was due to the news of Credit Suisse not accepting bonds of Adani group as a result of the Hidenberg report.
Nevertheless, the government has walked a tight rope in balancing growth with fiscal discipline. Post the budget the market reaction was strong.
However, the relevance of the budget has been coming down over the years. It is unlikely that we will be talking about the budget a couple of months down the line.
The economic survey has estimated nominal GDP growth of 10.5% in FY24.
Inflations seems to be peaking and it is expected that the US Fed commentary will be dovish in the coming months. From a medium term perspective, we should do well and earnings growth should regain momentum which will eventually propel our markets upward.
Disclaimer : None of the stocks mentioned are recommendations and are used only for illustration purposes.
Vaibhav Agarwal is smallcase manager and Head of Research at Basant Maheshwari Wealth Advisers
