Budget 2022 is likely to be positive for bond market: Gaurav Dua of Sharekhan by BNP Paribas

Budget FY23 is likely to have a positive impact on the bond market as the surge in revenues could aid the government to meet fiscal deficit target and the government could indicate further measures towards fiscal consolidation, Gaurav Dua- Head – Capital Market Strategy, Sharekhan by BNP Paribas opines. Edited Excerpts:

Q) In terms of sectors – Power, Utilities, capital goods led the rally. What led to the price action?

A) The government is expected to continue its focus on supporting the investment cycle in the forthcoming Union Budget 2022-23.

Accordingly, the media reports suggested a possible hike of 20% in budgetary allocation to capital expenditure to around Rs 6.5 trillion.

This could be commendable given the sharp increase of 25% in capital expenditure allocation in last year’s budget.

Also, some of the power generation and utilities are expected to ramp up the alternate energy portfolio and/or raise money for further expansion.

Consequently, the capital goods and power companies are in focus and have seen some buying interest ahead of the Budget.

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Q) Can we say that we are in a pre-budget rally – what does the trend suggest?

A) Usually, market participants do try to anticipate budgetary proposals and accordingly there tends to be buying interest in select stocks or sectors ahead of the main event.

This year, we believe that the government’s agenda in the Union Budget 2022-23 would be marked by beginning of fiscal consolidation given the elevated level of deficit and surge in revenue collections.

On the other hand, the focus would also be on providing relief to select income segments (largely rural and blue-collar employees suffering from stress in the MSME sector) and select sectors like tourism, travel, MSME & certain other services segments under stress from the pandemic led disruptions.

Finally, the government would like to continue with their focus on healthcare and infrastructure-related capital expenditure along with kick-starting the private CAPEX cycle.

Q) Greaves Cotton, Deepak Fertilisers closed the week with strong gains what led to the price action? And, what should investors do?

A) We have coverage on Greaves Cotton and continue to maintain our buy rating on the stock given the company’s strong balance sheet, progress on EV offerings, and expectations of improvement in its core business. We do not cover Deepak Fertilisers and would not be able to comment on it.

Q) What does D-Street expect from the Budget?

A) From a capital market perspective, the Union Budget 2022-23 may not surprise market positively as was last year. Most tailwinds are already factored in, and the government’s focus could be on boosting existing policy initiatives in FY23E rather than announce any new schemes.

Hence, we expect Budget 2022-2023 to be neutral from the capital market perspective. Having said this, the undertone of the speech is expected to be pro-growth though the political compulsions could lead to populistic measures in the light of the forthcoming state elections.

Further, Budget FY23 is likely to be positive for the bond market as the surge in revenues could aid the government to meet fiscal deficit target and the government could indicate further measures towards fiscal consolidation.

A clam bond market and the expected inclusion of India in global bond indices is strategically positive for equity markets as well.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)