Budget 2024 to Boost Social Spending, Invest in Jobs, and Control Spending: Morgan Stanley

12 Jul 2024 , 09:17 AM

According to global brokerage Morgan Stanley, the forthcoming budget will be heavily focused on fiscal restraint, capital expenditures to support job creation, and targeted social sector spending.

In accordance to this brokerage, the federal government is expected to stick to its interim budget’s 5.1% fiscal deficit target. With this, the government will meet its FY26 objective of 4.5% of GDP.

The larger-than-expected transfer of surplus from the RBI is one of the main causes. According to Morgan Stanley, the transfer will assist the government in sustaining the current pace of capital investment and augmenting specific social spending.

“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,” the brokerage stated.

Morgan Stanley, though, doesn’t think the capital gains taxes will alter. Furthermore, the absence of significant tax cuts or spending on redistribution may surprise the market.

According to the broker, “The impact of the budget on the market has been on a secular decline, albeit actual performance is a function of pre-budget expectations.” Over time, the budget’s impact on the markets has been progressively less. Nevertheless, the expectations established before to the budget announcement determine the actual performance of the market.

The market is currently approaching the budget with great enthusiasm and may experience volatility as well as a correction after the budget.

Morgan Stanley lists the following as important variables to monitor in the markets:

• How much fiscal consolidation has been done (0 to 10 bps of GDP over the interim budget)
• The difference between the interim budget and actual spending on social and physical infrastructure (about 20–25 basis points of GDP)
• Sectoral expenditures and incentives
• Rate adjustments for capital gains on equities

Morgan Stanley, though, doesn’t think the capital gains taxes will alter. Furthermore, the absence of significant tax cuts or spending on redistribution may surprise the market.

For feedback and suggestions, write to us at [e-mail]