The budget has delivered a Triveni Sangam of fiscal prudence by lowering the deficit this year to 4.8 per cent of GDP and next year to 4.4 per cent of GDP below street expectations, boosting urban consumption through income tax cuts by giving a tax cut for income up to Rs 12 lakh and enhancing allocation for capital expenditure by 10 per cent at the central level and 17 including grants.
The budget has invested in the future by allocating Rs 10,000 crore for a start-up Fund of Fund scheme; Rs 25,000 crore for shipbuilding through a Maritime Development Fund; and Rs 20,000 crore for small modular nuclear reactors. All these investments are futuristic and could have a multiplier effect on the economy.
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The budget’s focus on education — through the digitisation of school and college books, broadband availability to government schools, and tens of thousands of Atal Tinkering Labs to encourage innovation — is a step in the right direction to ensure that the country’s next generation is better educated and employable.
Developing the labour-intensive toys and footwear industry and the renewable energy sector through a manufacturing ecosystem and clusters of excellence will require faultless execution.
The budget focuses on the tourism sector and aims to develop 50 destinations and expand medical tourism. This will require public and private partnerships at various levels. Indian citizens must adopt “Swachh Bharat” and “Atithi Devo Bhava” in the true sense.
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To continue improving the ease of doing business, the pace of repealing outdated laws, through the Jan Vishwas Bill proposed in the budget, must be enhanced. The saying, “well begun is half done” does not apply in this case. These outdated laws impose high compliance burden on our entrepreneurs. The time has come to end the Inspector Raj. The Jan Vishwas Bill must find ways to unburden entrepreneurs so that they can match up to global competition.
Raising resources through divestment could have increased money for capital expenditure. However, the government is probably constrained by its institutional capacity to spend appropriately.
The budget reiterates repeated commitments like centralised KYC and “ghar wapsi” for fund managers who want to manage money from India for global clients. We hope that good intentions are converted into tangible results. The proof of the pudding will be when buying mutual funds becomes as easy as buying gold, and our corporates start visiting Gift City over Singapore to meet investors.
The best part of the budget was a commitment to lower India’s debt-to-GDP ratio over the next six years. No parent would like to leave the burden of debt to their kids. The path of fiscal prudence will ensure that our generation doesn’t mortgage our kid’s future for our present.
The path of fiscal prudence has laid the foundation for the monetary policy committee’s cut in the repo rate and for the RBI’s improvement in durable liquidity. Estimates for next year’s GDP growth should get a boost if fiscal and monetary policy move in tandem to be growth-oriented.
Markets are driven by flows, sentiments, and fundamentals. This budget will maintain positive domestic investor sentiment, encourage domestic flows to the capital market, and improve corporate profits over time.
The de-rating of emerging markets drives foreign portfolio investors to sell emerging markets. The US equity market has done exceptionally well over the last few years while emerging markets driven by China’s massive underperformance have lagged by a margin. Higher US interest rates have also reduced appetite for non-US investments. FPIs are sitting on large profits in India. India’s impressive performance compared to other emerging market peers and liquidity in the domestic market is tempting FPIs to take some money off the table. To enhance FPI’s participation, we need to grow our economy and corporate earnings faster than our peers through sensible fiscal and monetary policies.
There are no easy entries or exits in the market. If the side of the trade is known, the market will extract its price. FPI selling has been regular but at a price. If the selling becomes aggressive or without price limits, prices will correct further from current levels. If their selling is within the price limit, then markets are likely to witness a time correction, where every rise will be capped. If they turn buyers, markets will witness a sharp spike.
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The investor must follow their dharma of asset allocation. Equity is reasonably valued. Maintain equal portfolio weight with a bias towards large-cap stocks with reasonable valuations. Use corrections to enhance allocation to equity.
Gold looks good as central bankers around the world are diversifying their reserves. With higher chances of rate cuts and improving liquidity, long-duration assets and performing credit funds look appropriate for debt allocation.
The investment pitch has become bowler-friendly, so scoring runs will not be as easy as before. Saving a wicket and staying on the pitch is the best way to score runs and ensure victory.
The writer is MD, Kotak Mahindra AMC
