Budget Verdict | Fiscal deficit at 5.1% aggressive target: Shankar Sharma explains why India remains a smallcap market

The market has not reacted extensively towards the budget, this Sharma says is because the important announcements had already been factored in

The government's fiscal deficit target of 5.1 percent for FY25 is fairly aggressive and there could be a reduction in capex spends if revenue falls short, according to market expert Shankar Sharma.

"Capex has to be reduced in order to meet the fiscal deficit target of 4.5 percent in FY26. Capex cannot continue at this breakneck speed. And when capex spend is dialled down in the upcoming years, largecaps will take the biggest hit. That's why I say that India remains a smallcap market," Sharma explained during an interaction with Moneycontrol.

“The reality of this will pan out over the course of the next 12 or 13 months. And if the revenue numbers do not cut through, the capex spends will have to face a cut back," he said.

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In the Interim Budget 2024, Finance Minister Nirmala Sitharaman proposed to raise capital expenditure — the fourth consecutive year of upward revision — by 11.1 percent on-year to Rs 11.11 lakh crore, which is 3.4 percent of the GDP.

Sharma said that he wasn’t surprised with the interim budget announcements as it was in line with market expectations. "It is a stock market-driven government," he said, adding that the interim budget was simply a continuation of the presently prevalent policies.

The market has not reacted extensively towards the budget because the important announcements had already been factored in. “The upsides of the capex spends are already factored in. I do not think that the market has factored in any slippages on the capex front, especially because the fiscal deficit number is quite aggressive.”

Also read: Nothing new in Interim Budget; see deep value in energy, power, PSUs, metal, cement: Quant's Sandeep Tandon

Following the interim budget announcements, the Sensex closed down 106.81 points or 0.15 percent at 71,645, and the Nifty was down 28.20 points or 0.13 percent at 21,697.50. About 1,662 shares advanced, 2,026 shares declined, and 111 shares were unchanged.