Did the Budget Satisfy the Stock Market's Expectations?

The Finance Minister presented the Union Budget today and its safe to say the market was happy.

So what's our view on Budget 2022?

Well, let's get into it.

A good way to judge the pros and cons of the budget is to compare it to the market's expectations.

Last week, we wrote about the market's expectations. Here's the link to that piece.

So did the budget measure up? Let's look at the expectations point by point...

On government spending, this is what we wrote...

• The market expects stability this year along with a continuation of existing programs.
  
  Last year, the government increased spending in response to the pandemic. It also significantly ramped up infrastructure spending.
  
  This time around, the market does not expect a huge increase in spending. In fact such an announcement could trigger a negative response due to concerns over the fiscal deficit.
  
  The market should respond positively to an announcement of a clear path to manage spending in the long term.

Well the markets was surprised by the announcement of another big jump in infrastructure spending.

But the market was reassured by the government focus on bringing down the deficit. The target for FY23 was 6.4% of GDP compared to 6.9% in FY22.

The finance minister mentioned the buoyant GST collections as the reason why the government was able to spend so much on building physical infrastructure.

Thus, India is now in a sweet spot. Infra spending can rise each year along with GST collections. At the same time, the government can also keep the deficit in check.

This bodes well for India's economy.

Also, the government met the market's expectation on infrastructure. The Gati Shakti master plan to create world-class infrastructure was welcomed by the market.

Road building got yet another boost this year. The government will expand the national highway network by 25,000 km. This implies a rate of about 70 km per day. The current speed is about 40 km per day.

The is hugely positive for companies like NCC, IRB Infra, and PNC Infratech.

The railways got a boost with the announcement of 400 Vande Bharat trains and 100 Gati Shakti cargo terminals. These are to be developed in three years.

This is sure to boost India's GDP growth. The market was also relieved there was no election related announcement concerning the railways.

The market expected an announcement on rail safety measures and they weren't disappointed. A fully indigenous world-class safety and capacity system, KAWACH, will cover 2,000 km of rail network.

There were allocations to green energy projects too but no announcement for the natural gas sector.

The market was expecting the big telecom sector announcement on the 5G auctions and the market got it. The 5G auction and initial rollout will happen in FY23.

You can check out the top 5G stocks on Equitymaster's Stock Screener.

All in all, infrastructure was the clear winner in this budget. Check out India's top Infra stocks here.

Unfortunately for the realty sector, there were no big announcements.

What about the auto sector?

The market was expecting at least some EV related announcement.

But there was only one specific announcement. The finance minister announced a battery swapping policy. This is a positive for the sector but this is still at a nascent stage.

You can check out India's top EV stocks here.

The healthcare sector was acknowledged in the budget with the announcement of the national digital health ecosystem and the national tele-mental health program.

However, there was no big spending announcement for the sector in the budget.

For India's private sector defense companies, there was good news. About 68% of the capital allocation will be spent domestically.

Startups too received support in the budget. Tax benefits for newly incorporated startups were extended by 1 year.

Startups in agri-tech and finance will benefit from the support measures announced in the budget. However, there was no announcement regarding listing on foreign stock exchanges.

On the taxation front, the market did not expect any big changes and they were right.

Also along expected lines, the MSME sector received a lot of support. This will help in the post-covid recovery process.

One disappointment was on the privatisation front. The market wanted to hear names of potential candidates for privatisation. There were no names mentioned. The disinvestment target of Rs 650 bn is an achievable goal.

Conclusion...

The market has welcomed the budget because the government has satisfied most of its demands without going overboard on spending.

Here's what we wrote last week...

• All in all, the market expects the government to keep its focus on infrastructure in this budget without going overboard on spending.
  
  If the government can keeps its expenses in check, the market will breathe a sigh of relief on inflation.

The finance minister has delivered what the market wanted.

And that's why the market ended in the green today.