Job creation via capex, social spending, fiscal prudence to be key themes in Budget 2024, says Morgan Stanley

A holistic approach to infrastructure development will elevate operational efficiency and global competitiveness in the logistics industry. The continuity in policy measures related to infrastructure development remains crucial to sustain this growth trajectory.

The key themes in the upcoming budget would be centred around fiscal prudence, capex spending to help create jobs and targeted social sector spending, according to international brokerage Morgan Stanley.

The brokerage said it is likely that the central government will retain a 5.1 percent fiscal deficit target, in line with the interim budget. This puts the government on track to achieve the 4.5 percent of GDP target by FY26.

One of the key reasons is the larger-than-expected transfer of surplus from
the RBI. The transfer will help the government maintain the momentum on capex expenditure and increase targeted welfare spending, per Morgan Stanley.

"In this context, we see the possibility of a slightly lower fiscal deficit target (tad below 5.1% of GDP) given the support from tax and non-tax revenues," said the brokerage.

Key themes in the budget will be job creation through capex, targeted social sector spending and focus on 'Viksit Bharat' plans. "We expect the focus to remain on capex expenditure over revenue expenditure and targeted social sector spending with focus on improving access to physical, social and digital infrastructure," said Morgan Stanley.

Impact on Equity Markets

According to the brokerage, "The impact of the budget on the market has been on a secular decline, albeit actual performance is a function of pre-budget expectations." The effect the budget has on the markets is steadily decreasing over time. However, how the market actually performs depends on the expectations set before the budget is announced.

Currently, the market is coming up to the budget with exuberance and could be dealing with both volatility and a correction post-budget. Key factors for the markets to watch, according to Morgan Stanley, are:

• The extent of fiscal consolidation (0 to 10 bps of GDP over the interim budget)
• The delta in spends on physical and social infrastructure (by about 20-25 bps of GDP over the interim budget)
• Sector-level incentives/spends
• Changes to capital gains tax rates for equities

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