Vijay Kumar Gaba

 Largely as expected; capex sustainability core focus (Phillips capital)

Budget fared well across categories – prudent fiscal position, steep rise in capex allocations, continued focus on sustainability, Atmanirbhar Bharat, and social upliftment.

Capex budgetary allocations have risen sharply in FY24 (up 37% vs. 23% in FY23); including IEBR, growth stands at 32%/10% in FY24/23. Incremental capex allocation in FY24 is highest for railways, roads, infra spending by states, and energy; defence and housing are muted; additional allocation of Rs 550bn has been made towards OMCs and BSNL capital infusion.

Sharp drop in food and fertiliser subsidy (Rs 1.6tn) is in the expected lines. MNREGA allocations have also see a sharp decline to Rs 600bn vs. Rs 894bn in FY23RE.

Fiscal deficit for FY24/23 is in line with our expectation – at 5.9%/6.4% of GDP; gross/net borrowing expectedly remains elevated at Rs 15.4tn/11.8tn, marginally higher vs. FY23. We expect this to keep yields elevated in the near future until clarity emerges on RBI rate reduction path (likely by Q3-Q4 FY24). State fiscal deficit limit has been set at 3.5% (including 0.5% for power sector reforms). Tax/GDP ratio at 11.1% bakes in all optimism, we expect marginal slippage considering likely economic softness in FY24. Revenue  expenditure/disinvestment targets are realistic, marginal slippage also expected under non-tax revenue.

Strategy

Buoyant public and private capex keeps us positive on the investment sectors (capital goods, railways, cement, logistics; defence is a tad soft – as expected) more than the discretionary segments. We are also positive on the agriculture space, government’s focus on raising domestic production, and eventually encouraging exports – is a long-term positive for rural income. Near-term, we are not positive on rural demand, FY24 allocations not encouraging.

Union Budget FY24: A Fixed Income and Macro Perspective (IDFC Mutual Fund)

Central government gross borrowing through dated securities is estimated at Rs. 15.4 lakh crore in FY24, well within market expectations, after Rs. 14.2 lakh crore in FY23 which was also devoid of any surprise. States’ borrowing could pick up in FY24 in line with potentially mildly-higher fiscal deficit, higher SDL redemptions and a possible shift from the pattern in FY22 and FY23 of a consistent undershoot the borrowing calendar. This implies consolidated (centre + states) gross borrowing, moving up each year after moderating from the peak in FY21, could now rise beyond FY21 and well above pre-pandemic borrowing (Figure 4). Even net consolidated borrowing as a share of GDP will be 1.1ppt higher than FY20 (pre-pandemic). Total outstanding government liabilities remain high at 82% of GDP at end of Q2 2022, after rising to 89% of GDP in FY21 and FY22 from 75% in FY20.

However, the central government is now in a position such that if nominal growth is in the 10-11% range and expenditure does not rise sharply in FY25 and FY26, it could well be on the fiscal glide path and get to below-4.5% fiscal deficit in FY26.

Strategy

While gross borrowing announced today has positively surprised versus market expectation, the standalone number is nevertheless a significant one. We expect the yield curve to steepen further somewhat, especially over the latter part of the year when market may have better line of sight on whatever modest rate cuts to expect if at all down the line; assuming a soft-landing scenario for the developed world.

The environment for fixed income is decidedly getting more constructive given better macro stability, terminal policy rates in sight, and the consequent fall in global bond market volatility. This argues for somewhat higher duration in active funds than before. At any rate one has to compensate for the ‘roll down’ effect on portfolio duration that happens when one is passively holding the same set of bonds. For these reasons, and keeping consistent with our underlying view, we have expanded our consideration set to 3 - 6 year maturity bonds; a marginal tweak from 3 - 5 year maturities before.

Pragmatic budget with focus on Growth and Macroeconomic Stability (Canara Robeco)

Budget has managed to create investment acceleration without damaging other expenditures. This was a modestly positive for equity markets. Consistent key positive for economy has been that Govt has been trying to focus on productive spending within constraints of resources over last 8 years.

Strategy

Budget is modestly positive for Industrials, Banks and both FMCG and non-FMCG discretionary consumption. Equity market will move back to two key factors from tomorrow, the earnings (season) and cost of capital (interest rate outlook globally). We think that both these factors are neutral to negative for us from near term perspective and thus market will continue to consolidate till we get visibility on earnings upgrades or substantial decline in interest rates (Inflation globally/locally) to change multiples. India trades at premium to other Ems and thankfully that is correcting with the consolidation over last 1 year. Indian equity market trades at 19xFY24 earnings – with earnings CAGR of 13-14% over FY23-25E – in a fair valuation zone from near term perspective.

Marching ahead on sustainable growth path (JM Financials)

The main focus area of Budget FY24 was on capex, with a substantially higher allocation of INR 10tn (33% YoY) while adhering to the fiscal consolidation path. The fiscal deficit target is set at 5.9% of GDP for FY24, but the way forward to FY26 would be steep.

Capex target for FY23 missed slightly (INR 7.3tn vs INR 7.5tn FY23BE) as states could not undertake the capital expenditure. The revenue growth assumptions (10.5% YoY) look optically conservative since it is on a higher base of FY23. However; over the FY23BE figures, the revenue growth rate comes to 22% which is quite stretched.

Strategy

We have a constructive view on the markets and we believe that the high allocation towards capex and schemes like PM Awas yojana are likely to benefit real estate ancillaries like cement and building materials while companies in the industrial space are the clear beneficiaries of the governments capex push.

Capex boom all the way (Yes Securities)

Continuing from the previous years, this Budget is a futuristic blueprint that seeks to harness the full potential of the economy through universal development and to touch the lowest income pyramid with inclusive policies. Impetus for job creation and macro stability remains the economic objective of the Budget making exercise. To improve the future productive capacity of the economy, effective capital expenditure has been increased to 4.5% of GDP or INR 13.7 tn, with outlay for railways and roads respectively up by 50.0% and 25.0% respectively over the FY23RE.

We see the budget maths as being rational with the nominal GDP growth assumed at 10.5% and laud the government for being able to stick to a consolidation plan at 5.9% GFD/GDP in FY24BE from 6.4% in FY23RE.

Strategy

The yield curve has flattened out significantly as the RBI has sharply increased the short-term rates. We see some scope for the yield curve steepening once again while holding the short-end of the curve. Tighter liquidity, larger general government issuances along with probable increase in the corporate bond issuances could be the factors behind steepening of the G-sec curve.

As in most years, we see the central government front-loading its borrowings into H1 FY24, thereby creating a possibility for the 10-year G-sec yields to rise to around 7.60-7.75% in that period.

Critical would be the demand from the insurance companies to clear the market supplies. We note that the incremental buying of the insurance companies in H1FY23 is lower than in H2FY22. The demand for guaranteed returns insurance policies could also die out as banks have raised their deposit rates now and tax arbitrage at higher end of term premia is done away with in this Budget.

Balanced Budget With Capex Led Growth (Kotak Mahindra AMC)

❖7% Growth expectation for FY23 looks Conservative

❖Focus on 3G

•      Growth - Fiscal consolidation & Infrastructure spending

•      Governance - Improving Tax Compliance

•      Green - Energy independence through green energy

❖Higher spending on Infrastructure than expectations to help Capex and Growth

❖Consumption to get a boost - Tax cuts

❖Multiplier effect on growth by pulling in private investment

❖Achievable divestment target of ₹ 610Bn

Strategy

❖Equity/Hybrid:

•      Indian Markets trading at a premium to other Ems

•      It’s a Buy on Dips Market

•      Allocate via Hybrid Funds such as Balanced Advantage & Multi-Asset Funds

•      Conservative investors can consider Equity Savings and Conservative Hybrid Funds

•      Exposure to Equity Funds preferred via SIP route

❖Fixed Income:

•      Market Linked Debentures will be taxed as Short Term Capital Gains at applicable rates. This will bring it at par with Debt Mutual Funds

•      Yield curve has flattened in the last 1 year, 3-7 years segment of the curve looks attractive

•      Short/ Medium Duration & Dynamic Bond Funds can be considered

•      Some allocation to Long Duration Funds can be considered in case the long-term yields harden further

Consistent, Credible and Prudent (IIFL Asset Management)

In line with the past few budgets, the government maintained its focus on capital expenditure to improve long term growth potential. While the headline capex growth seems higher (37% growth YoY), the adjusted budget spends are still higher by 25% YoY post internal adjustments, which is commendable. Further, a larger proportion of the capex has been provisioned for the central government (against spends by states and PSUs), which should result in better execution.

The FM maintained the trend of projecting realistic and achievable estimates, leaving the potential for an upside surprise if there is a pickup in economic activity. Tax revenues are projected to grow at 10.4% (vs 12.3% in FY23). Divestments targets also seem achievable at INR 610 bn (vs INR 600 bn in FY23). Improvement in global activity and peaking of interest rates could lead to upward revisions and lower deficits compared to projections.

Strategy

We maintain our focus on creating a balanced portfolio with a mix of companies which are likely to – experience structural growth or benefit from the economic turnarounds. In terms of sectors, we see interesting opportunities in Private Sector Financials, Consumer Discretionary, Industrials and Materials to participate in the domestic economic recovery.

We continue to maintain an overweight exposure to the secular segment (31% portfolio vs 21% for benchmark) and remain underweight in value traps (20% vs 31%) across most of our portfolios. Our portfolios are also overweight cyclicals (22% vs 16%) vs defensives (25% vs 32%), we expect this trend to continue in the near term.

Growth support; fiscal consolidation (DBS)

The central government’s FY24 Budget was growth supportive whilst sticking with a

modest glide path for consolidation. The underlying math was reasonable as it factored

in the upcoming moderation in nominal GDP growth, and lower tax buoyancy, whilst prioritising long-gestation capex spending.

Accompanying sectoral announcements were a mix of tweaks to the personal income tax brackets (to provide support to the salaried class), changes in custom duties to support local manufacturing, and targeting green transition goals, which was balanced by higher allocation towards MSME credit guarantee schemes, skill upgradation and other inclusive welfare goals. The medium-term path of further fiscal rationalisation remains in place as the government reinforced its target of lowering the deficit to -4.5% of GDP by FY26.

Strategy

The high contribution of small saving scheme might be at risk as banks continue to offer competing deposit returns. Looking ahead, market conditions might be less conducive in FY24 on account of a narrower liquidity balance, squeeze on banks as credit growth continues to outpace deposit generation hurting incremental demand for bonds as well as limited progress on global bond index inclusion plans. This increases the likelihood that the central bank might show its hand via open market operations in the course of the year to contain unexpected volatility.