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Budget proposals on these 5 broad themes could cheer market

The S&P BSE Sensex plunged by about 3000 points from the lifetime highs of 50,184 while Nifty50 breached 14,000 levels for the first time since January 4 on Wednesday.

January 28, 2021 / 12:56 PM IST

The Union Budget, which will also be the first since the pandemic, has kept everyone from investors, industrialists, analysts to policymakers on toes.

In the lead-up to the premier event, the market has fallen over 4 percent after forming lifetime highs on January 21 when Sensex breached the 50,000 landmark and Nifty surpassed 14,700 for the first time.

The S&P BSE Sensex has fallen by 3000 points, while the Nifty50 breached 14,000 levels for the first time since January 4 on Wednesday.

Expectations are running high from the government to deliver a growth-oriented budget especially after the Finance Minister suggested that she will deliver a once in a century Budget.

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Experts feel that not just growth, but the government has to stick to fiscal discipline as well. We can’t ignore the fact that benchmark indices might be trading near high valuations; hence, some any negative global or domestic trigger could fuel extended profit-taking.

“Indian markets are currently trading at high valuations going by historical standards. However, global interest rates have never in the past remained so low for so long and hence the past valuation criteria may need to be seen in the changed context,” Deepak Jasani, Head of Retail Research, HDFC Securities told Moneycontrol.

“Abundant liquidity and low-interest rates have kept FPIs pumping money in large sums in Indian markets. Having said that, in case we witness any negative trigger globally (in terms of fresh US policies on trade or geopolitics, other geopolitical troubles, China-related issues, inflation or interest rates starting to rise sustainably or Central Banks giving indications of an early end to monetary stimulus) or local negative trigger (Union Budget outcome, Q3 results or guidance, interest rate or inflation movement on the upside) we could see a correction in the markets,” he said.

Jasani further added that the quantum and the time of correction will depend on the trigger that causes this correction as well as whether more negative triggers happen after the first one.

Antique Stock Broking has highlight 5 broad theme which could cheer D-Street in the upcoming Budget 2021:

Fiscal Consolidation:

The brokerage firm expects the Government to focus on growth while sticking to fiscal discipline.


It expects the FY22 Fiscal deficit to be at 5.0% and reach towards 3% fiscal deficit by FY25. The move will be overall positive for the market.


Boost Consumption:

By reviving consumption demand, the government might be able to boost the economy which is in technical recession. The brokerage firms expect Revenue expenditure growth of 14% YoY in FY22 (vs 6% in FY21)

One way to revive consumption is to give more cash in the hands of people. It expects a tax rebate of Rs 12,500 to be extended for the higher income tax bracket.

Reviving urban demand may gain prominence in FY22. This can be done by increasing allocation in PMAY – Urban. Some incentive for service sector especially tourism to revive travel and leisure industry can also be expected.

One key focus area is to increase the deduction limit for home buyers and vehicle scrappage policy, the brokerage said.

Investment

Antique Stock Broking expects Capital expenditure growth of 18% YoY in FY22 (vs 14% in FY21). It expects more clarity on the recently announced PLI scheme and also expects an injection of Rs 400 billion.

The government could keep an overall strong capital spending target for metro, defence, other infrastructure projects (like Sagarmala, Multi-modal logistics park etc.) as the state fiscal situation remains weak. It may announce Rs 3 trillion packages for the Power sector.

Strategic Divestment:

The government could provide more details on the strategic divestment roadmap. CPSEs is an attractive value bet especially because of an impending divestment trigger

“Despite the failure of strategic divestment in FY21, we believe that government will focus on this avenue (as against ETFs) to fund higher expenditure, avail advantage of the buoyant capital market and unlock true asset value,” Antique Stock Broking said in a note.

“In the past (2002), we have seen that strategic divestment acted as a key trigger for the re-rating of entire PSU basket,” it said. Along with the divestment trigger, the under-performance of CPSEs over the last decade makes PSUs an attractive value sector.

Banking:

The government could allocate funds to recapitalise banks to strengthen the bank balance sheet. The move will be positive for all PSU banks.

The government could also give a roadmap to consolidation, improve governance, and privatisation of state-owned banks.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Kshitij Anand is the Editor Markets at Moneycontrol.

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