Budget 2022 Expectations For Key Sectors From Top Brokerages
From fiscal consolidation path to bond and asset sales, analysts say budget proposals will impact market volatility amid domestic and global uncertainties.
Domestic stock benchmarks are trading with gains since the last budget. Yet, stocks have corrected amid mounting Omicron cases, political tensions in Ukraine and U.S. Fed tapering concerns.
Analysts expect budget proposals and India's push for growth to aid sectors including banks and auto to real estate.
Here’s what analysts expect from Budget 2022...
The government's fiscal deficit to narrow to 6% of GDP in FY23 and 6.8% in FY22. If the LIC IPO happens in FY22, it could be even lower at 6.4%.
Budget to focus on gradual fiscal consolidation, continuing to favour investment-driven growth with a push for both public and private capex, and raising additional resources through strategic divestments and asset monetisation.
Looking for clarity for Indian bonds to be included into global bond indices.
Market participants still need to negotiate volatility.
Factors that will likely have maximum impact include a credible fiscal deficit target, the government's spending plans, changes to long-term capital gains tax, lower taxes for the services sector, resolution of tax issues for fully accessible route bonds, and the timing and quantum of asset sales.
A high base in excise duties will constrain tax revenue growth.
Expects the FY23 fiscal deficit to fall to 6.4% of the GDP, still significantly above pre-Covid levels.
Limited opportunities for the budget to surprise on the upside with the risks weighing more on the downside.
A renewed push for privatisation likely in FY23. Bharat Petroleum Corp., Container Corp., Shipping Corporation Of India, BEML Ltd. and IDBI Bank Ltd. likely candidates.
Likelihood of 5G auctions in Q4FY23, which could help to balance the high RBI dividend of FY22.
High food and fertiliser subsidy burden of FY21-22 is likely to see a reduction in FY23, though still twice the pre-Covid levels.
The government's push for capex seen sustaining under the Rs 100 lakh crore+ infrastructure pipeline programme; projects a 20% capex growth.
About 20-25% rise in budget spends on road and rail, higher allocation to hydrogen mission and further thoughts on monetisation of roads/rail/power assets.
Total expenditure rise should be lower at 9% with some savings likely in the rural employment scheme and one-offs like vaccine expenditure.
Tobacco taxes may see a tweak as India considers WHO recommendations of taking taxes up to 75% of retail prices.
Key themes/bets: Focus on banks, healthcare and public sector units.
Overall revenue collection can rise another 16-17% YoY in FY23, assuming a nominal GDP growth of 13% YoY.
Total expenditure growth of 11% YoY in FY23 should be adequate to sustain the ongoing growth recovery.
Fiscal deficit likely to be targeted at 6.5% of GDP in FY23, 50 basis points below the likely 7% of GDP outturn in FY22.
The strategy of boosting on-budget capital expenditure should be continued.
After supply-side reforms to boost local manufacturing (PLI schemes), fostering entrepreneurial spirit, accelerating urbanisation drive, asset monetisation and privatisation, it's important to execute rather than announcing new measures.
While the budget would seek to create jobs, it has to be done in a way that inflation does not spiral out of control.
A prudent balance between capital and consumption expenditure will need to be sustained, even as targeted demand support is provided for the poorer sections of society and MSMEs.
If LIC IPO fails to materialise by end-March 2022, the FY22 disinvestment target of Rs 1.75 lakh crore will see a large shortfall, but the pipeline for FY23 will look much better.
The government is likely to factor in at least Rs 1.75 lakh crore as disinvestment proceeds for FY23.
If the remaining tax issues are sorted out in the budget, it is reasonable to expect index providers to announce India’s inclusion in bond indices sometime in the first half of the fiscal.
Last year’s budget had a lot of positives—transparent accounts, credible estimates, high-quality spending, gradual consolidation, and tax policy stability. Sticking to these can go a long way.
Alongside, effective implementation of some already announced reforms (fiscal, financial, and manufacturing) could help set the stage for strong growth once pent-up demand fades.
The government is already pursuing some important reforms related to fiscal policy (asset monetisation scheme), tax policy (improving the GST regime), the financial sector (improving the Insolvency and Bankruptcy Code and the creation of a bad bank), and manufacturing (PLI schemes). Implementing them properly is a better strategy than announcing new reforms.
Some sectors (like power, telecom and retail) have faced policy shocks over the last few years. Efforts to improve policy certainty can have a positive spillover effect.
RBI faces an urgent task of inflation control. Monetary policy needs to be normalised quickly as any delay risks even bigger rate hikes down the road and more policy uncertainty, which could be painful.
Growth will be strong in the next few quarters. It will be fuelled by pent-up demand.
The government has room to report a lower-than-expected 6.8% deficit for FY22 as revenues are ahead of estimates despite the recent excise duty cuts and spending is tracking below forecasts.
With revenues expected to grow further, the government can cut deficit in FY23 and still deliver absolute growth in spends.
Citing media reports, the research firm gave its takes on what kind of tax relief is likely:
For markets: a reduction or elimination of capital gains tax or the securities transaction tax. This appears unlikely given equity markets have done well and don't need regulatory support just yet.
For individuals: lower effective taxes for mid to lower income households either through a reduction in rates or an increase in standard deduction. This is possible, but difficult to reflect through stock sectors (lower end discretionary stocks: electricals/appliances).
For real estate: tax incentives that reduce mortgage costs. This is advisable as increased home construction can have multiplier effects—but will need to happen in size and with medium-term duration (not just one-year incentives) to have a noticeable effect.
Direct Tax Code: Implementation of the proposals to streamline individual taxation appears unlikely in the near term.
Budget could reinforce the government's ‘Atmanirbhar Bharat’ (Make in India) manufacturing push, potentially adding to subsidy allocations. Stock impact will depend on sectors identified—solar/semiconductors have been recent beneficiaries.
Talk of government measures to support agriculture and farm incomes (we like two-wheelers for potential volume recovery, but are underweight on staples on possible volume weakness).
Counter-cyclical government spending can be a strong driver of economic recovery but the impulse likely to reduce in FY23. States now incur more capex, which can remain steady next year.
Higher credit flow can also help close the output gap.
Key themes/bets: Prefers rate-sensitive sectors like banks, autos and real estate; underweight on domestic consumer.