Budget 2022 continues to drive the investment push from the top as the government engages all leavers to ensure that the Indian economy remains the fastest growing large economy on the planet. New initiatives on promulgating the startup ecosphere and improving ease of doing business are likely to give markets direction on the government’s thinking of a future ready Indian economy. Notably in its attempt to push growth, the government has significantly opened up the economic wallet leveraging the above estimate revenue collections and a large borrowing program.

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Capex all the way

The PM Gatishakti program to improve connectivity and reduce logistical bottlenecks is likely to drive Capex spending for the year. A significant jump in capex allocation (Rs 7.5 lakh crore a 30 percent+ jump from 2021) if implemented well will act as significant conduits from the domestic economy.

The series of programs aimed at improving local standard of living like the ‘PM Awaas Yojana’, ‘Jal se Nal’ yojana and programs around education and healthcare could infuse fresh blood in areas of the Indian economy that can be perceived as ‘low hanging fruits’ for development.

For FY22 (BE) – Capex will roughly account for ~3 percent of GDP. The government has also increasingly used state bodies and the state machinery to ensure better utilisation and larger multiplier effect with large infrastructure projects. Synergies will be key to watch out for in the year ahead.

Sustainability and the need to promote sunrise industries

Recognizing the need to cultivate and develop technologies of the future the government has committed to supporting sustainable technologies through several targeted development programs. A new Production Linked Incentive scheme (PLI) for the solar industry and introduction of Sovereign Green bonds for Carbon neutral projects has also been proposed.

Bond inclusion hopes dashed

The budget speech and documents did not discuss the changes to capital gains tax for India bonds that could have enabled inclusion into bond indices. The likelihood is low for it to be taken up in this Budget session of the Parliament with the Finance Bill already tabled. With a larger than expected supply to absorb, this disappointment has driven bond yields sharply higher.

Crypto, Blockchain and digital assets

In a thinly veiled attempt at regulation and as a perceived precursor to the possible Crypto Currency bill, the Budget outlined a series of measures to ensure adequate regulatory cover to navigate the evolving ecosphere. Notable announcements include

A new Digital Rupee backed by the RBI harnessing the attributes of blockchain to boost the digital economy and offer a more efficient and cheaper currency management system

Introduction of a specific Taxation regime of Virtual digital assets

TDS on transfer of digital assets

Way forward and market view

Equity markets

The equity markets see the budget favourably primarily on two fronts — Higher capex spending by the government & status quo on direct taxes and no incremental taxes on capital gains. The booster shot by way of capex and a strong market signal to promote growth through structural reforms are key positives for domestic and foreign investors alike.

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The budget is a strong positive indicator for growth potential of Indian companies. A 14 percent nominal growth in US$ 3.2 trillion GDP provides ample headroom for companies to grow. Further with domestic economy companies in favour for much of the government’s capex outlay, economic multiplier effects should have a significant bearing on sectors like steel, cement, telecom and also trickle down effects into consumption.

Execution of Budget 2021 left a lot to be desired by way of execution. Budget 2022 in that sense is more pragmatic and we will wait to see how the government executes its bold capex play for the year. Our portfolios currently are positioned to play the growth story.

—The author, Shreyash Devalkar, is Senior Fund Manager – Equity, Axis Mutual Fund. Views expressed are personal

(Edited by : Ajay Vaishnav)