Budget 2022: A progressive step in the right direction: Prakash Gaurav Goel, Senior Fund Manager, ICICI Prudential AMC

1 Feb 2022 , 07:36 PM

The Union Budget for 2022-23 presented by the Hon’ble Finance Minister Nirmala Sitharaman has ticked all the right boxes with economic growth being the focus theme. Broadly, the initiatives around capital expenditure, push for long-term growth drivers like infrastructure and the underlying precedence given to growth over inflation is exactly what the Indian economy needs right now.
The Budget announcements, in a way, are a continuation of the careful-yet-bold handling of the macroeconomic situation which kicked in after the arrival of the Covid-19 pandemic. Despite challenges and unexpected major expenditure like mass vaccination and boosting healthcare infrastructure in a short span of time, the government has managed to keep the fiscal deficit, current account deficit as well as inflation, all under check. The Reserve Bank of India too has contributed to this momentum through its monetary policy and proactive steps in liquidity management.

With healthy corporate earnings being reported, there is a firm belief that the economy as well as corporates are in a good shape and is steadily gaining further strength. As a result, equity markets have been buoyant thus far. In such a setting, equity markets had no major expectation from the budget
Through the Budget, the government has also maintained stability in its tax policy and focus initiatives which encourage capex and digitisation of the economy, all of which steps in the right direction from an equity market point of view.
That being said, the emerging situation globally, especially the imminent upward movement in interest rates, had led to some expectations from the fixed income side. On this front, steps to enable inclusion of Indian debt in Global Bond Indices was something that the fixed income market was expecting. This, combined with the fact that the government’s borrowing program is significant, resulted in a sharp spike in bond yields.  In the near term, this aspect can also put pressure on the equity market.
In the larger scheme of things, investors must be conscious about the emerging situation in both global as well as domestic markets. The rising interest rates in different parts of the world and tightening of liquidity could pose a challenge for markets in the near term. This is at a time when interest rates in India are relatively high when compared to global peers, while there is not much of a remarkable difference in inflation level between India and the developed markets. Therefore, the Indian economy and as an extension the equity markets would be looking forward to measured steps that the government and the RBI will take on the interest rate front and inflation management.  
At a sectoral level, the steps announced are likely to benefit sectors like infrastructure, telecom, real estate, manufacturing, capital goods and cement to name a few. These were also the sectors which needed support given the current stage at which India is in terms of the economic cycle.
To conclude, the budget is a progressive one which is both realistic and growth oriented. We believe the steps announced today is a move in the right direction which will be beneficial both for the economy and the equity market. 

Author of the above article is Mr. Prakash Gaurav Goel, Senior Fund Manager, ICICI Prudential AMC