Market to remain weak until govt shows growth roadmap

By Motilal Oswal

The expectations, going into the Union Budget, were that growth would be based upon the principle of inclusive growth and meeting the medium- and long-term objectives set by the incumbent government in its previous tenure. It has done just that in this Budget.

As per my reading of things, the Budget has given priority to agriculture, MSME, NBFC, infrastructure and affordable housing. Reviving business confidence, private capex recovery and manufacturing have got lower attention.

The Budget did its best to alleviate concerns in the financial market. It provided for additional Rs 70,000 crore for recapitalisation of PSU banks. The government would provide a one-time six-month partial credit guarantee (first loss of up to 10 per cent) to public sector banks to buy pooled assets of sound NBFCs amounting to Rs 1 lakh crore this financial year. This would help the NBFCs that are fundamentally sound in getting funding from banks.

Equity markets were convinced of the intent of the government to go for growth push. There are two ways of doing it: one is by bringing more money into government channel by extra taxes and then spending the same to infuse that money in the economy, and other is leaving more money in the hands of people to boost consumerism. The government has chosen first over the later.

Markets will trade little weak in the near future as long as the government does not show the roadmap of growth and execution of the same. If the market weakens in the near future, that will be an opportunity to increase equity exposure as the long-term outlook is promising.

The National Housing Board (NHB), besides being the refinancer and lender, was also the regulator of the housing finance sector, which was somewhat conflicting. Hence, the move to return the regulatory authority of HFCs from NHB to RBI would help strengthen of the sector and bring them at par with others in the financial industry.

The Budget has set the ground for the government to execute its reforms over next five years. While the announcements have been on the macro level, one needs to see the granularity of these proposals to understand how they would be implemented and what will be the impact on the economy in the coming days. Overall, we believe this Budget would set the economy back on the growth path.

(Motilal Oswal is Chairman & MD of Motilal Oswal Financial Services. Views are his own)