3 Reasons Why Markets Cheered Budget

'Market feels this Budget will promote all-round growth and that is what is giving it confidence.'

Forget if you must the sudden fall of 1,200-odd points between 12.15 pm and 1.15 pm, bulls dominated Budget day racking up 1.46 per cent or 848 points on the 30-stock bellwether index, the BSE Sensex.

"Forget it, forget it, forget it," fires Deven Choksey, the promoter and managing director, KR Choksey Group, when asked for his reaction to the sudden but sharp drop in the Sensex post noon.

"A typical budget day market action," is how he describes the fall even as he brushes it off nonchalantly.

"Budget or no Budget, for (retail) investors, India's is a great economy to invest," is how the man who has seen such bigger and wilder budget-day swings for many a decade responds when asked for his advice to retail investors.

Choksey spoke with Prasanna D Zore/Rediff.com about why the markets cheered Finance Minister Nirmala Sitharaman's "no-frills but substantive and realistic" Budget proposals and why he feels the oncoming rise in US Fed rates may not have a huge impact on how investors look at equity in the Indian market.

The market seems to be very happy with the Budget.

More or less, because the market was focused on three aspects.

The first was rural consumption. Here, the Union Budget has made provisions for Rs 2.37 lakh crore direct payments to farmers for wheat and paddy and takes care of the MSP and consumption demand from the rural economy.

Then the finance minister also stepped up capital expenditure by 35-odd per cent to Rs 7.50 lakh crore taking care of investment revival and indirectly giving a boost to industrial and manufacturing consumption.

Lastly, the government has ensured that its borrowing programme and (fiscal) deficit (pegged at 6.4 per cent of FY23 GDP) do not go out of control.

These three steps have in my opinion made the markets feel that the government is going in the right direction without going overboard. All in all, a very realistic and achievable budget proposals.

Market feels that this Budget will promote all-round growth and that is what is giving it confidence.

What are the tailwinds that will support the economy going ahead?

Increase in spending will lead to increase in consumption leading to higher amount of industrial production leading to higher corporate profits which will lead to better earnings prospects for investors and that is what ultimately matters to investors.

Which sectors will benefit the most because of the increase in government's capital expenditure outlay of Rs 7.50 lakh crore?

I don't think any sector will be left out because this spending will be spread across different sectors. The PLI (production linked incentives) scheme covers 14 sectors; infrastructure sector is linked to capital goods sector which is linked to materials sector which is linked to labour sector.

I think this capex will cover the entire gamut of economic activities.

If you want to know one sector that will be most visible (beneficiary of this capital expenditure) will be the banking sector which will get the maximum visibility in earnings.

There are concerns of this spending stoking inflation fears, and in the context of the US Fed also indicating a higher interest rate regime, do you think the RBI will not look benignly at inflation concerns when it announces monetary policy on February 9?

I don't think inflation is (has reached or will reach) at threatening levels; in fact, I think (rising) inflation is transitory in nature and in my opinion inflation is cooling down.

Now, if in the US in the next two years interest rates rise to even 2 per cent even then it will be less that pre-pandemic US Fed rate. So, I don't think any increase in US Fed rates will impact us negatively in a huge way.

Any disappointments with the budget, especially with the disinvestment or privatization programme of the government?

Maybe, they have realised they cannot handle more than this (the budgeted estimate for divestment in FY23 is pegged at Rs 65,000 crore). They have realised they cannot handle bigger divestments than they are currently handling and they want to be realistic about it. This aspect of being realistic is what the market seems to have liked about this budget.

Unnecessarily inflating divestment targets would have hurt government's credibility. It is better they are keeping the fiscal deficit at a little higher level (estimated fiscal deficit is pegged at 6.4 per cent if FY23 GDP; the estimated fiscal deficit for FY22 was pegged at 6.8 per cent but the actual figure overshot marginally at 6.9 per cent).

What would be your advice to retail investors?

Budget or no budget, for (retail) investors, India's is a great economy to invest.

Buy on dips. India's is a fantastic market and one must definitely buy it on dips.

Are you comfortable with market valuations now?

It all depends upon how the currency (the Indian rupee) will behave (against the US dollar), how the liquidity will behave. If liquidity continues to flow into India then valuations will not be on higher side.

Do you see any turmoil in the Indian markets if the US dollar appreciates significantly against the Indian rupee?

There are many headwinds.

Three or four challenges for the economy that immediately come to your mind?

Crude oil, crude oil, crude oil, crude oil!