By Siddhartha Khemka
The Union Budget 2022 was clearly capex driven with the Government thrust on sustaining the economic growth through spending across the infra ecosystem. The budget was visionary with a long term picture in mind, thus focusing on macro along with micro-all-inclusive growth, fintech, financial inclusion, digital ecosystem and climate action. This is a big takeaway for the equity markets as it can broad base the growth momentum in the economy and revive the capex cycle.
Key highlights of the Budget
The limelight of the budget was expansion in capex target for FY23 by 35.4% to Rs7.50 lakh crore (2.9% of GDP) from Rs 5.54 lakh crore in FY22.
FM proposed to introduce digital rupee using blockchain technology by the central bank in FY23. Government also introduced a 30% tax on income from sale of digital assets, thus in a way recognizing Crypto transactions in India.
Government extended emergency credit guarantee for MSMEs for the hospitality industry and stretched it until March 2023. This should help delay any sharp uptick in bad loans in the coming fiscal year.
150,000 post offices has been proposed to be brought under the core banking system for better financial inclusion. FM also laid stress on ease of doing business by integration of state and central government systems through IT bridges, standardization and removal of overlap, which would enable launch of ‘Ease of Doing Business 2.O’.
Some of the key sectoral highlights:
Infra/Cement: Roads and Railways are the two biggest beneficiaries of higher capex spending. Road development target has been set at 25000 kms for FY23 (vs. 15000 annual run rate in the past). This will be positive for infra companies like L&T, KEC International, KNR Construction, etc. along with cement companies like UltraTech Cement, Birla Corporation, ACC, etc.
Railways & Logistics: India will run 400 new, energy-efficient Vande Bharat trains in the next three years. The railway sector will also see 100 Gati Shakti Cargo terminals, which will be developed in the next three years. Contracts for implementation of multimodal logistics parks at 4 locations through PPP. Positive for Container Corporation of India (Concor), IRCTC, TCI, VRL Logistics.
Affordable Housing: 80 lakh new homes to come up in 2023 under the Pradhan Mantri Awas Yojana with allocation of Rs 48,000 crore. This is expected to boost the affordable housing market. Positive for Realty, building material, cement, paints, housing finance companies.
Water: The Rs 60k crore has been allocated for Jal se Nal Yojna. Positive for Astal, Finolex Industries, Prince Pipes and Fittings, Supreme Industries.
EV: Government announced Battery Swapping Policy with standards on interoperability which will help in supporting EV adoption. Positive for cell manufacturers like Exide, Amara Raja. The government will also promote use of public transport in urban areas through use of electric vehicles. Positive for OEMs like Tata Motors, M&M (Mahindra & Mahindra).
Defence: Government has announced 68% of capital earmarked for the defence sector to be allocated to the domestic industry in FY23. It has also set aside 25% of its budget on defence R&D for collaborating with the private industry. Positive for BEL, Bharat Forge, HAL, Mtar Technologies
Telecom: India will conduct an auction of airwaves to ensure telecom operators can launch a 5G network by 2023. Government also announced fund allocation to ensure faster broadband in rural areas. Positive for players like Reliance Industries Ltd (RIL), Bharti Airtel
Prudent Fiscal position maintained
Given the positive and expansionary outlook towards the economy, fiscal deficit to GDP is expected to remain high. Thus the fiscal deficit has been set at 6.9% of GDP for FY22 (against 6.8% goal) and at 6.4% for FY23. It will take another four years to bring the deficit down to the recommended level of 4.5% by FY26. India is now the fastest growing nation among major economies and the GDP growth is pegged at 9.2% for FY22 and 8-8.5% for FY23.
Conclusion
We expect the market to react positively to the budget as it remains focused towards long term economic growth. This would support strong corporate earnings with positive bias for sectors like infra, housing, cement, cap goods, Defence and Telecom. Despite upcoming state budgets, the government did not deliver a populist budget and tried to maintain fiscal prudence.
(Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services. Views expressed are the author’s own..
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