ETMarkets Smart Talk: 7 things which markets want from Finance Minister in Budget 2023: Deepak Jasani


“The key expectation from Finance Minister Nirmala Sitharaman is to maintain the growth path while keeping fiscal deficit and inflation in check,” says Deepak Jasani, Head of Retail Research, Securities.

In an interview with ETMarkets, Jasani said: “Tackling slowdown in growth and a rise in Current account deficit could be the focus areas of the Union Budget,” Edited excerpts:

How do you sum up 2022 and how do you see markets in 2023?
Indian markets outperformed most other markets in 2022 benefitting from better management of macros including inflation management and corporate earnings that did not disappoint majorly despite challenging times.
(Tax breaks, jobs or plan to beat China: What will Budget 2023 offer? Click to know)This meant that India got a larger than proportionate share of FPI funds directed toward emerging markets. Rising trade/fiscal deficit and pressure on Rupee were viewed negatively.

As we enter 2023, India could continue to benefit from a high investment-to-GDP ratio (at 33% in FY23 versus 30.5% in FY21), higher infra, railway, road, and defense spending by the government; continued revival in the real estate sector, PLI-driven investments and supply chains are being consciously decoupled as national security concerns outdo economic efficiency.

Emerging Markets (EMs) are likely to benefit from a relatively more benign world vs. 2022. However, India’s trailing outperformance could take a breather in H1CY23, given relative valuations.

That said, India is likely to have better growth than most parts of EM due to a relatively strong macro environment.

A range of policy reforms implemented over recent years set the base, while further policy action has empowered people and boosted financial savings, directing flows into equities.

Key developments tracked in 2023 (other than earnings) would be state elections, Union Budget, RBI monetary stance, Trends in trade and fiscal deficit, inflation moves, geopolitical situation globally, commodity price trends globally, economic growth momentum in the world, etc.

Do you think the sectors that worked well in 2022 will continue to perform in 2023 as well?
In India among sectors, IT, Healthcare, Realty, and Consumer durables indices fell the most in 2022. IT stocks came under selling pressure due to diminished large order visibility and margin pressure due to wage hikes.

Cyclical sectors like Auto, Power, Capital Goods, Banks, Oil & Gas all did well as value buying pushed up prices of these sectors even as each of the sectors had unique tailwind going for them.
FMCG is the only defensive that did well helped by

where the resumption of cigarette volume growth and value buying led to the stock seeing a 52% rise over the year.

In 2023, BFSI, Industrials, and Automobiles may outperform due to the tailwinds enjoyed by these. This apart from the defence and renewables stocks could bounce up faster than others given the visibility of revenue and margin growth in these two.

BFSI enjoys tailwinds like rising credit demand, stable NIMs and gradually improving asset quality. Industrials can benefit out of public CAPEX which has been robust and private CAPEX which could take off soon.

Automobiles can benefit due to large order backlog, easing of supply bottlenecks and expected improvement in rural incomes/wealth.

Where do you see rupee headed in the year 2023?
Indian Rupee showed lagging recovery vs the USD after INR outperformed till April/May 22 compared to other currencies.

Rupee fell due to geopolitical worries (Russia -Ukraine War), surging inflation and rising global Interest Rates, the rising dollar index, rising trade deficit, FPI outflows, weaker currencies of peers, and high crude oil prices.

Outlook for 2023

• Foreign institutions have turned net buyers in the last couple of months
• Better macros compared to peers including recovery in High-Frequency Economic Data
• Peaking of US interest rate and inflation.
· Weakening US Dollar index
· Inclusion of India sovereign bonds in the global bond index

• Longer and deeper recession across the globe boosting USD and impacting exports
• Political setback to the ruling alliance
• Risk off sentiments impacting FPI and FDI inflows
• Crude oil prices shoot up
• Trade deficit continues to rise

We expect USDINR to remain in the 78-84.25 band in 2023.

Few headwinds which India has to battle in the first 6 months of 2023?
Worries for India include core inflation remaining entrenched at 6% YoY with most items witnessing no let-up in momentum, pressure on fiscal deficit due to MNREGA spending & subsidies, high Current Account Deficit (4.4% in Sept 2022 quarter – a 9-year high), the fiscal deficit in India (Centre and Total) not likely to come back soon to prudent levels after the Covid breach.

What are your expectations from Budget 2023?
The upcoming Union Budget (on Feb 01) will be the last full year budget from the Modi government ahead of the Lok Sabha elections due in early 2024.

The key expectation from Finance Minister Nirmala Sitharaman is to maintain the growth path while keeping fiscal deficit and inflation in check.

The Centre is likely to over-achieve its receipts in FY23, allowing it to meet higher-than-budgeted spending without breaching its fiscal deficit targets.

The Centre wants to achieve a deficit of 4.5% by FY26. To reach there, it must reduce the same to 5.6-5.8% of GDP in FY24 vs 6.4% in FY23.

A fiscal policy concern that needs to be urgently addressed is the significant compression of capital expenditure in most states, despite the ₹1 trillion interest-free loan provision for capital expenditure by states, which is exacerbating the growth slowdown.

Tackling a slowdown in growth and a rise in the Current account deficit could be the focus areas of the Union Budget.

Markets would like FM to
1) stick to the fiscal consolidation path and not go populist
2) do not tinker with Capital Gains taxation
3) remove double tax on buyback through open market
4) not tinker with direct tax rates
5) keep borrowings under check so that interest rates in the system do not rise further
6) provide further incentives on exports of goods and services to bring trade/current account deficit under control
7) widen the tax net without increasing compliance requirements

Which sectors could remain in the spotlight in the Budget 2023 which is also the last Budget before India goes to poll in 2024?
Defence, Railways, Capital Goods, BFSI, and rural-facing sectors could be in focus ahead of the Budget. While some expectations from these sectors could be fulfilled, some others will remain unfulfilled.

Do you see interest rates peak out in 2023? If yes, what kind of impact could we see on currency and equity markets?
Short-term interest rates in India may have already seen a peak by now. However longer-term interest rates may stay elevated for some more time till global interest rates peak out and pressure on INR reduces.

If the long-term interest rates in India start to soften sometime later than those abroad, it will help Rupee stabilise and start recovering.

Once the Rupee starts reversing from the bottom (vs the USD) we may see stability in the stock markets and the beginning of a recovery.

In terms of primary markets – after what happened in 2022 with New Age companies do you think future listings will also see similar enthusiasm from retail community?
In 2020 and 2021, the IPOs got subscribed well because the US markets (including Nasdaq) was doing well, and promoters could justify high valuations based on high P/Es at which tech stocks were quoting abroad. Primary market investors made money in IPOs initially.

However, once the US markets topped out and the greed of the promoters reached very high levels, the tide turned, and IPOs started to list at a discount.

This led to promoters postponing their IPOs and investors also cold-shouldering IPOs generally.

IPOs will keep hitting the markets as a lot of investors want an exit and some companies want growth capital. The timing of these will depend on the recent performance of the secondary markets.

Investors will have to evaluate them well and not just get carried away by the grey market premium or the listing gains of recent IPOs.

The post-listing performance will depend on how aggressive the pricing of the IPOs has been, the secondary market performance of recently listed IPOs, and action (unloading) by pre-IPO investors.

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



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