The 2022 budget should be positive for the bond market: Gaurav Dua of Sharekhan by BNP Paribas

The FY23 budget is expected to have a positive impact on the bond market as rising revenues could help the government meet the budget deficit target and the government may indicate further fiscal consolidation measures, Gaurav Dua- Head – Capital Market Strategy, Sharekhan by BNP Paribas is of the opinion. Edited excerpts:

Q) In terms of sectors – energy, utilities, capital goods led the rally. What led to the price action?

A) Government should continue to focus on supporting the investment cycle in the upcoming Union Budget 2022-23.

As a result, the media suggested a possible 20% increase in the budget allocation for capital expenditure to around Rs 6.5 trillion.

This might be commendable given the large 25% increase in capital spending allocation in last year’s budget.

Additionally, some of the power producers and utilities are expected to accelerate the alternative energy portfolio and/or fundraise for further expansion.

As a result, capital goods and power companies are in focus and have seen some buying interest ahead of the budget.

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Q) Can we say that we are in a pre-budget recovery? What does the trend suggest?

A) Usually market participants try to anticipate budget proposals and hence there is a tendency to buy selected stocks or sectors before the main event.

This year, we believe that the government’s program in the Union budget 2022-2023 would be marked by the start of fiscal consolidation given the high level of deficit and the strong increase in revenue.

On the other hand, the focus would also be on helping certain income segments (largely rural employees and blue-collar workers suffering from stress in the MSME sector) and certain sectors like tourism, travel, MSMEs and some other service segments under pressure due to the pandemic has led to disruptions.

Finally, the government wants to continue to focus on investment spending related to healthcare and infrastructure while reviving the private CAPEX cycle.

Q) Greaves Cotton, Deepak Fertilizers closed the week with strong gains, what led to the price action? And what should investors do?

A) We have a hedge on Greaves Cotton and continue to maintain our Buy rating on the stock given the company’s strong balance sheet, progress on electric vehicle offerings and expectations for improvement in its core business. We do not cover Deepak Fertilizers and would not be able to comment on it.

Q) What does D-Street expect from the budget?

A) From a capital market perspective, the 2022-23 Union budget might not positively surprise the market like last year. Most of the tailwinds are already priced in, and the government could focus on strengthening existing policy initiatives in FY23E rather than announcing new programs.

As such, we expect the 2022-2023 budget to be neutral from a financial market perspective. That said, the tone of the rhetoric should be pro-growth, although political constraints could lead to populist measures in light of the upcoming national elections.

Additionally, the FY23 budget should be positive for the bond market as rising revenues may help the government meet the budget deficit target and the government may signal further fiscal consolidation measures.

A calm bond market and India’s expected inclusion in global bond indices are also strategically positive for equity markets.

(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)

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