Budget 2022: Each sector has its own expectation from the budget. How much of it will be considered and its real benefit for the respective industries is another point. A key focus area of the government will be to improve public healthcare, its infrastructure and R&D. The common public will surely benefit in the future however gain to the private healthcare and pharma segment will be limited unless provided with infrastructure status and additional tax benefits.
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The other sectors of focus will be infrastructure and higher government spending in which private expenditure is currently low. For private sector, the other important reform will be green energy and manufacturing in India, supported by PLI scheme. Its structures and measures have been announced and implemented. So, unlikely to be a key additional factor of the budget announcements however being a key platform, we can expect the reiteration of reforms and visions undertaken during the year with some modifications.
Other than expenditure and manufacturing, a key theme of the budget will be to increase consumption and housing, especially on unprivileged and rural sector. We can expect some populist measures too with context to 7 state elections this year. Emphasis will be to increase rural income and NREGA scheme. It will benefit Staples, FMCG and Agri sector.
We can also expect tax benefits especially in the low-income bracket of salaried taxpayer. It will be with a mix of increasing the level of tax income, reduction in tax rate and deductions. The reasons will be factoring high inflation, work from home difficulties, drop in income due to pandemic, populist measure and increasing government income from indirect tax.
Other key point to look into is the fiscal position. The high fiscal target of 6.8% for FY22 is most likely to be achieved and will have a high deficit target between 5% to 6% in FY23. Intentions will be to increase government expenditure as private expenditure is still low and supporting indirect tax collections.
If we review the short-term pre and post budget performance of the stock market, in the last decade of 2010 to 2020, the volatility has drastically reduced. Based on last 5yrs performance, it is clearly noticed that budget outcome has limited impact the performance of stock market, it is neutral on a medium to long-term basis.
However, volatility is high when we are near elections, especially National elections. Volatility is also noticed associated to other events and global factors. This time we have 5 state elections post budget, including key states like UP and Punjab. This is presumed to be the precursor of the national election stated 2 year ahead. Along with this, the other factor surrounding the market is weak global market due to hawkish monetary policy, high inflation, geo-political issue and Q3 results.
Over the years, the expectation on the budget has reduced. This time the expectations looks high given reformist aura of the government & in anticipation of support during pandemic. However, we should have noticed that major reforms are undertaken outside the budget forum and large part of these measures are already done or under implementation. This year the budget will be good for the economy/masses however it will enlighten the equity market will be limited.
(Vinod Nair, Head Of Research at Geojit Financial Services)
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