Vijay Kumar Gaba

The union budget presented on 1^st February 2022 was widely hailed as growth supportive. Almost all experts and commentators opined that ~14.5% in budget capex would catalyze a new wave of infrastructure and industrial development and growth in the country. The finance minister highlighted the following four pillars of growth as the basis of her budget proposals.

1.    Accelerated development of world class infrastructure (PM Gati Shakti)

2.    Using digital capabilities for delivering inclusive development

3.    Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action

4.    Crowding in private investment through enabling policy environment

Most strategists projected high growth for the infrastructure and capital goods sectors in the wake of great emphasis placed on capex by the finance minister.

However, collective wisdom of the markets did not concur with the enthusiasm of the finance minister and a majority of experts, as the funds allocations in the budget did not match the promise. The benchmark Nifty50 corrected over 5% in the five weeks following the presentation of the budget.

After one year, on the eve of another budget, the benchmark Nifty is almost the same level as it was a year ago. The promise of high growth made in the budget has been belied. Industrial growth (especially manufacturing growth) has collapsed in FY23. The latest NSO estimates peg FY23e industrial growth at 4.1% and manufacturing growth at a dismal 1.6%. Construction sector has also witnessed deceleration. Investment (Gross fixed capital formation) growth has declined to 11.5%.

In recent months some signs have emerged that indicate that the much awaited capex cycle might be just beginning to materialize and we might see some tangible outcome in the next couple of years. The budget for FY24 is therefore important in the sense that nothing is proposed in the budget which negatively impacts the nascent capex recovery in the private sector (also see Time for delivery is nearing). However, given the fiscal, economic and political constraints I shall not be expecting any material positives from the budget.

Some key highlights of the market performance since 2022 budget presentations are as follows:

·         Benchmark Nifty (1%) is almost unchanged since the last budget.

·         Small cap (-17%) have underperformed majorly. Midcap )-0.5%) have been almost unchanged since the last budget.

·         PSU Bank (~28%), FMCG (~21%), Metals (~16%) and Auto (~11%) have been the top outperforming sectors.

·         Media (-17%), Realty (-16%), IT Services (-14%) and Energy (-7%) have been the top underperforming sectors.

·         Infra (-1%) and Services (-3%) did not do much in the past one year.