Daily Voice | Direct measures to alleviate stress on rural regions and urban poor missing in Budget 2022: Gaurav Dua of Sharekhan

It's a growth-oriented budget with focus on addressing supply side issues and supporting the nascent investment cycle in the economy. The government has avoided populist measures ahead of critical State elections, also maintained a stable tax regime and not tinkered with long-term capital gains tax. Purely on growth orientation, it is a good budget for the economy and equity markets.

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However, some of the budgetary estimates are quite intriguing. Given the expectation of 8-8.5 percent growth in real GDP in FY2023, the nominal GDP growth of 11.1 percent seems to be far below expectations of 13-14 percent, assuming average inflation of 5-6 percent in FY2023.

Also, the surge in capital expenditure allocation seems to have come at the expense of revenue expenditure. Adjusting for interest payments, revenue expenditure is estimated to decline by 4 percent in FY2023 BE as compared to FY2022 RE. So, essentially the fiscal math does not add up though the higher-than-expected economic growth could make up for the gap in budgetary estimates.

Overall, it is a good budget from the equity market perspective given the growth orientation and the government's intent to take measures to ignite the twin engines of property cycle and investment cycle to drive a multi-year economic upcycle in India.

You say it is a growth-oriented budget... Has the government done a fine balancing act?

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In this budget, the government has focussed on productive expenditure to develop infrastructure and boost the manufacturing sector rather than worry too much about fiscal deficit consolidation. The infra focus should have a multiplier effect on the economy and eventually benefit people from across income segments and regions. So, clearly, it is a growth-oriented budget with a focus on aggressive public spending to kick-start the virtuous investment cycle.

What are the most surprising announcements made by Finance Minister Nirmala Sitharaman in her budget speech?

The estimate of 11.1 percent growth in nominal GDP is the biggest surprise for us and appears to be highly conservative given the expectation of 8-8.5 percent growth in real GDP in FY2023. Also, we had expected some measures to alleviate stress in the rural economy and boost consumer demand, which seem to be missing in the budget.

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Have you spotted any negative announcements (with respect to equity markets, FIIs, retail investors etc) in the budget speech?

The gross government borrowing of Rs 14.95 lakh crore is one of the most negative takeaways from the budget and much higher than expectations of Rs 12-12.5 lakh crore. This has raised concerns in the bond market, with a surge of over 10 bps in bond yields post the announcement of the budget. The much higher borrowing plan could put upward pressure on interest rates in the economy, which could be counterproductive.

In the wake of the budget, which are the sectors to bet on and why?

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We continue to prefer real estate, engineering and select building material, banking and consumer stocks based on our preferred investment themes of: 1) Economic cycle, and 2) Strong export demand.

Do you think this budget has put a clear roadmap for India to achieve its $5 trillion target by 2024-25?

Two consecutive years of 8 percent plus growth in real GDP driven by productive investment in infra development sets the stage for a multi-year economic upcycle in the economy and its path towards the $5 trillion mark.

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Are you happy with the divestment programme set in Budget 2022?

The divestment target seems to be quite achievable this time around as compared to the ambitious goals set in past few budgets, which seems to be the right approach.

As per your reading, what are the missing factors in Budget 2022?

As explained earlier, the lack of direct measures to alleviate stress on rural regions and the urban poor seems to be the missing piece in the budget. The government is hoping strong economic growth will percolate down to the lower income group and do so. But this could take time and add to the growing skew in the economy in the revival cycle.

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