Markets reaction knee-jerk; not all tax savings will chase spending, says this seasoned fund manager and chieftain of mutual fund

For those proclaiming a market inflection point, he advises restraint.

Following the trading session on Budget day, one key question that has surfaced in the market is if the additional disposable income in the hands of the middle class will indeed fuel a consumption boom?

While some argue that the incremental earnings will predominantly flow into consumer staples and discretionary spending, Anand Radhakrishnan, Managing Director of Sundaram Mutual Fund believes the reality will be far more nuanced. He urges caution against oversimplified narratives.

"Even within consumption, shifts are likely. People may move from staples to discretionary spending, or even trade up from basic goods to premium products. But beyond consumption, some may choose to save or invest, especially considering the decline in financial savings over the past few years," Anand Radhakrishnan explained in an exclusive conversation with Moneycontrol.

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Even within consumption, shifts are likely. People may move from staples to discretionary spending, or even trade up from basic goods to premium products. But beyond consumption, some may choose to save or invest, especially considering the decline in financial savings over the past few years," Anand Radhakrishnan explained in an exclusive conversation with Moneycontrol.

The knee-jerk market reaction suggests a boost to consumption-driven stocks. But Ramakrishnan warns against jumping to conclusions. "Anything can happen. The propensity to save may rise, investments could increase, and discretionary consumption might also see an uptick. We need to remain data-dependent rather than presumptive."

Read more: Budget brings big cheer for middle class with no tax up to Rs 12 lakh income, upward revision in tax slabs, says Suresh Soni

On the broader investment cycle, he sees no major disruption. "Public and private investments remain on an upward trajectory. Government capital expenditure, while not accelerating as fast as before, is still growing at 10 percent annually. Most government expenditures are aligned with nominal GDP growth rates, including capital expenditures."

For those proclaiming a market inflection point, he advises restraint. "Declaring a definitive shift from an investment-driven market to a consumption-led one might be premature. The economy's fundamental investment drivers remain strong."

On Budget Day, all consumer companies were in the green, with the FMCG sector leading the way with over 4 percent gains following the budget announcement. By the end of the session, the Realty index took the top spot with 3.38 percent gains, followed by NSE Consumption 3.14 percent, Nifty FMCG 3 percent, Nifty Consumer Durables 2.96 percent, Nifty Media 2.21 percent, and Nifty Auto 1.91 percent.

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