Last week’s budget was a much-anticipated one. The country’s fiscal policy brain, heart and math were to be uncovered in a rather soupy backdrop:
the interim budget had shown hints of a turn in direction towards fiscal prudence,
the election outcome was marked by a surprising dilution in majority, which compelled people to expect a welfare-oriented budget, and
despite this, the government continued focusing on its Viksit Bharat goals in the pre-announcement commentary
So, finally, what has the budget been? Growth-oriented, welfare-oriented, balanced, or plain simple directionless?
In a Nutshell
From our stock market-draped lens, the budget was opportunistically well-balanced. Why do we say that?
The budget continues to be growth-oriented, albeit a lower pace - which was already established in the interim budget a few months ago, where infra capex spend growth was reduced to 11%, from 30-40% per year before that
A lot of the building blocks for catalysing growth were already set up in the previous budgets, when individuals, corporates and monetary policy were all chained down by high inflation. Those blocks do enable all these three to make up for the minor reduction from fiscal support
The budget continued to focus on fiscal prudence by maintaining its target despite ramping harder on welfare spending, which didn’t come at the cost of incremental growth, but was opportunistically utilised from the Rs. 2 lakh crore RBI dividend, and robust tax collections
Policies set by the government also seem in the direction, where it can spend a much lower amount and in turn trigger a larger chunk by corporates.
A reflection of the attempt to revitalise capex using PLI could now be seen in opex initiatives, through reimbursements to corporates to hire people, thereby boosting employment, money in the hands of the youth, and hence growth.
Overall, great budget as far as our opinion matters!
Key Features of the Budget
But isn’t making money what matters at the end of the day?! Here’s a little decoding for your extremely valid question - paisa kidhar banega?.
Budget Feature | Impact |
Maintained spending on infra, defence and manufacturing | These areas should now be seen as long-term plays based on fundamentals rather than surprise policy shifts. Investors might want to temper their expectations for sudden gains and focus on the bigger picture |
Higher spending on agriculture, rural areas, and on housing subsidies through PMAY | Potential boon for stocks in consumer, microfinance, housing finance, and building materials |
Bihar, Andhra, and the broader East got their moment in the spotlight, too. With already impressive growth rates on a low base, additional attention should further accelerate their progress | Cement sales in the East over the past five years serve as a prime example of this growth. It might just be the next big investment theme |
The power sector got the attention it has been getting for the past many budgets now, with the launch of PM Surya Ghar Yojana, exemption of duties on import of critical elements, and no exemption on some items to promote domestic industries | The solar space will continue buzzing because of these announcement, as India moves closer to its 50% renewable mix goal by 2030 |
A Couple of Hits and Misses
The hit - Several steps the government took were visionary, and highlighted the long term orientation of policy formation. Key amongst those was the focus on nuclear energy, where the budget laid out Rs. 13,208 crore for partnerships with the private sector on (i) setting up reactors, (ii) R&D of reactors, and (iii) R&D of newer technologies, in addition to full fiscal support for a 800MW Advanced Ultra Super Critical thermal plant as a JV between NTPC and BHEL
The miss - An increase in short-term capital gains tax and STT were expected, and designed to curb speculation and short-term trading, and rightly so. But the bummer was in an increase in long-term capital gains tax, which ended up disappointing a large strata
What Next?
Overall, we think the budget was a positive, from a longterm viewpoint. The cutback in ‘growth’ spending has been made up for by an increase in welfare spending, which also has the potential to spurt growth.
The tax increase doesn’t look too worrying, because, lets be real, it's unlikely to deter investors with a multi-decade outlook.
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