Budget Highlights
Positives from the budget
- Fiscal consolidation along expected lines, supported by realistic revenue targets, balances the need for macro stability with the push for economic growth.
- Overall capital expenditure growth is exceeding nominal GDP growth, supported by significant transfers to states to drive the capex push.
- Incentives for new age sectors like data centers, AI, electronic manufacturing etc. are a positive
- Reduced taxation on buybacks is positive for markets.
- There could be some buffer in the RBI dividend to the Centre due to rupee depreciation.
Negatives from the budget
- Subsidies, pensions and interest payments continue to be big part of overall expenditure constraining capital expenditure.
- Some expectations of measures to encourage financial savings or reduce capital gains tax were not met.
- Increase in STT is sentimentally negative.
Takeaways
Given the consumption stimulus already provided through income tax and GST cuts there has been limited room for fiscal stimulus and therefore on that side there has been no big surprise. The government may also have to consider the impact of upcoming Pay commission. A key trend to monitor is whether divestment can be leveraged to provide stimulus for the economy, especially since the budget has raised the divestment target to ₹ 80,000 crore.
From a macroeconomic perspective, the recent rupee depreciation, combined with last year’s consumption stimulus and resilient global growth, is creating a more supportive backdrop for economic activity and corporate earnings. However, long-term valuations are at fair value, and the continued supply of equity through IPOs and QIPs may keep markets in a consolidation phase in the near term.
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