Improving fiscal math leads to growth

“The government now looks committed to its fiscal roadmap, with an Arjuna eye on the Fiscal deficit target of 4.5% of GDP by FY26,” says Amar Ambani, Executive Director, YES Securities.

In an interview with ETMarkets, Ambani said: “Improving fiscal position sets the stage for growth-conducive monetary policy, lower interest rates, economic stability, and attractiveness to global investors,” Edited excerpts:

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How do you rate the Interim Budget on a scale of 1-10 (10 being the best) and why?

Interim Budgets prior to general elections are usually a lukewarm affair and tend to be populist in nature.

On this account, I would give full marks to the government for breaking tradition and not being populist in this budget.

In fact, overall subsidy trajectory, as a percentage of GDP, is dropping back to pre-Covid level of 1.15%.

Rs 11.11 lakh crore – a number which has caught the eye of many. What do you make of the current outlay and the impact it will have on the economy?

Firstly, the original Budgeted number for FY24 was very high, in my view. From where we are with the revised estimates for FY24, an estimate of Rs11.11 lakh crore is a reasonable increase.

Second, I would say that the government has played its part by doing the heavy lifting and front-loading capex when the economy needed it the most.

Even as the proportion of government capex as a percentage of total expenditure will remain elevated, the private sector capex is now required to carry the mantle.

Yet, the government continues giving interest-free loans to states, who are encouraged to invest in infra and has a higher multiplier effect.

A lower-than-expected fiscal deficit target of 5.1% of GDP for FY25 and even lower 4.5% by 2025-26 – how do you read this?

We’ve seen that in the government under Prime Minister Modi, actual expenditure tends to be less than the Budgeted outlay.

This has been true for all years, barring the Covid period. This time around, Union Budget Expenditure for FY25 sees the lowest growth in 19 years, and quite a frugal number of 6%.

The Finance Minister pleasantly surprised everyone with a much lower fiscal deficit target of 5.1% and has rightly chosen to focus on fiscal prudence.

The government now looks committed to its fiscal roadmap, with an Arjuna eye on the Fiscal deficit target of 4.5% of GDP by FY26.

In my view, a proactive approach to fiscal management and a well-balanced fiscal roadmap was on the cards to attract foreign capital flows into Indian bond markets, after their inclusion in global indices.

This will ensure reduced government borrowing, lower bond yields, and improved credit availability for private-sector investments.

What is your call on the fixed income space? Yield dropped post Budget – does that hint something?

In the present scenario, India’s inflation internals are much better than the world. This was not always the case.

We’ve seen times during the last 15 years, when the world faced low inflation and many parts were trying to ignite price rise into their economies.

Now, with the government signalling lower market borrowing and encouraging foreign capital, yields will inch lower.

Improving fiscal position sets the stage for growth-conducive monetary policy, lower interest rates, economic stability, and attractiveness to global investors.

We see RBI taking a lot of comfort in the government’s leap on fiscal rectitude, enabling the MPC to change its policy stance shortly, and deliver rate cuts as soon as Q2 CY2024.

Which sectors are likely to benefit the most from Budget 2024?

The overall focus on infrastructure, real estate, and green will help several sectors across the building material pack like cables & wires, cement, pipes, paints and so on.

Focus on upgrading railway infra will bring in additional opportunities for companies in Aircon, Bearings Wheels and Brakes. Contract manufacturers will gain from a significant rise in allocation to Electronics.

The two crore homes for the middle class also bring opportunities for the building material segment, and real estate, although limited to the urban realty segment.

For salaried investors how should one be looking at the Budget – are there any tweaks required for an MF portfolio?

The Budget signals a continuation of the development agenda. With reaffirmed fiscal prudence, the signal is positive for Indian equities. Investors must continue to remain invested for the long run.

There is a possibility that we’re in a structural upcycle for Indian equities, drawing parallels to historical trends seen in the US stock market from 1987 to 2000 and 2009 to 2020.

Although the Budget highlighted continuity of policies and more outlay – are there red flags that you saw in the Budget?

Given that this was an Interim Budget before elections, I wouldn’t say there were any major red flags. If I had to nitpick, then I would say that some were surprised to see no extension of the 15% concessional corporate tax rate for new manufacturing units.

Any company that is mid-construction but will not start production at the new plant before the expiry date of March 2024 will not receive the benefit of 15% tax regime. Many companies expected a two-year extension.

But my sense is that the government is working on a comprehensive plan with ongoing discussions around free trade agreements and possible big drops in import duties in the future.

What is your take on the rising interest of the government on renewable or green energy? Will this space produce maximum multi-baggers in the near future?

The government’s focus on Green is evidently clear and positive for the economy. Whether it creates multi-baggers must be seen in conjunction with many things – for instance, one crore rooftop solar for homes is the right step, but if the government allows cheap imports to keep costs low, then may not help certain Indian component players.

So, other factors have to be considered in totality. But the opportunity is huge. One move in the Interim Budget, that stated the government’s intention to introduce security payment mechanisms, would help bring in payment transparency and reduce financial risk to OEMs.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times)

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Harry Byrne

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