Union Budget All Set to Put Wind in Economys Sails

There is a saying, “Sometimes you need to take one step back in order to go two steps forward.” This was the sight on D-Street when the market witnessed one of its worst falls in a decade ahead of the Union Budget as it lost 7.84 per cent from the highs but followed it up with a strong rally of over 9 per cent with both Nifty and Sensex registering new all-time high levels. The Sensex managed to close above the 50,000 mark for the first time ever. The robust performance of the last four trading sessions has helped the indices to outperform the Wall Street as the Nifty has gained nearly 9.24 per cent since the budget day as against a meagre gain of 2.47 per cent by the Dow. 

Let us now focus on the Union Budget announcements. Going into the budget day, expectations were quite high as the finance minister had announced that it would be a budget such as had never been seen before in 100 years. But at the same time market participants feared that some additional taxes would be announced. Allaying all fears, the finance minister presented a fearless budget and prudently avoided the indulgence of raising resources through additional taxation. At the same time, the budget announcements have bolstered the animal spirits of Indian entrepreneurs and financial market participants.

The Union Budget for FY22 is perhaps the most celebrated budget after the ‘dream budget’ presented by the then Finance Minister P Chidambaram. In her budget speech, the FM talked about the performance of the Indian cricket team in Australia where the team fought hard and displayed a never say-die attitude despite all the adversity they had faced. Similarly, she pointed out, despite the adversity caused to the economy by the pandemic, the government had taken all the blows in its stride and refused to kneel before the fiscal pressures and the views of global rating agencies.

Interestingly, this is also perhaps the first time when the markets have wholeheartedly cheered higher fiscal deficit. This is because the budget has laid down a strategic intent for taking India into the next phase of development by focusing on some key building blocks like healthcare and wellbeing, innovation and research and development, education, infrastructure and urban development. The budget also talks about stressed asset resolution by setting up a new structure. An asset reconstruction company and asset management company would be set up to consolidate and take over existing stressed debts and then manage and dispose the assets to alternate investment funds and other potential investors for eventual value realisation.

Apart from this, another important announcement was related to the thrust on structural reforms like disinvestment and gradual privatisation of PSU banks along with the allowance of 75 per cent FDI in insurance companies. Allowing the privatisation of PSU insurance companies is an indicator that the government will engage in a great deleveraging drive going forward. On the disinvestment front, the target of Rs 1.75 lakh crore seems quite convincing given the cheerful market sentiment and ample liquidity across the globe. But once again, unless the government attains the set targets, the entire math which has been worked out methodically in the budget will go awry. That apart, market participants would keenly keep a watch on the implementation of such bold reforms.

With the FM clearly in favour of a growth stance while relegating fiscal consolidation to the backburner for some time, all eyes would be now on the RBI meet outcome, which is scheduled for February 5. The question is whether the RBI will give us a pleasant surprise by announcing a rate cut which could act as a cherry on the top after a better-than-expected Union Budget. We believe the RBI may opt for a cut and if that happens, the rate-sensitive stocks may continue their fierce run and the Nifty would achieve one more landmark of 15,000. One sector which is certainly looking attractive and has the potential to outperform is Nifty Infra which has witnessed a breakout of nearly a 12-yearlong consolidation pattern with the government’s emphasis on infrastructure spending. We certainly believe ‘acche din’ are on the cards for this sector.