Stock market, debt market, infrastructure, healthcare to manufacturing - Union Budget FY22 is uncluttered and smart, says Anand Rathi

The Union Budget FY22 did not allow a good crisis to go to waste. Making up for the lack of a decisive fiscal stimulus in 2020, the budget has simultaneously rolled out uncluttered measures to stimulate investment, especially in infrastructure, healthcare, financial and select manufacturing sectors, and signalled progressive withdrawal of government from commercial activities. The budget is positive for the Indian stock market and could be neutral for the debt market if tactically implemented.

Giving growth a chance, limited fiscal deterioration and inflation risk. In 2020 India lagged most peers in terms of direct fiscal stimulus. The union budget FY22 made up for this and decisively opted to support growth and accepted a higher fiscal deficit for another year. Deteriorations of the fiscal situation are not as stark as figures might suggest since some traditionally off-budget items have been included in the budget this time around. With slacks in the economy, the inflationary risk is also limited, at least during FY22.

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Clear intent to exit pure commercial activities:

Apart from setting another ambitious target for divestment to fund the fiscal deficit, the government has reiterated its resolve to gradually withdraw from pure commercial activities and monetise idle assets.

Focus on investment:

The clear direction of the budget has been to stimulate investment, especially in infrastructure. Public investment has been boosted. Arrangements have been made to ensure greater availability of funding for private investment. Various schemes have been rolled out to facilitate greater corporate investment, especially in infrastructure and select manufacturing.

Positive for infra, financials, healthcare and select manufacturing:

These are the sectors which would directly reap the positive impact of the budget. Infra funding to get a major boost from a new institution. Benefits would also percolate to sectors such as consumer electronics, automobiles, and building materials. Due to the lack of measures supporting consumption per se, the impact on the consumer non-discretionary segment would be neutral.

Funding of fiscal deficit needs to be innovative:

Funding of large fiscal deficit and market borrowings could be tricky as also meeting ambitious divestment targets. It would be of immense help if India is included in one of the global emerging market bond fund indices and mobilises a part of market borrowings in rupee loans abroad. Continued open market bond purchases by the RBI would be necessary to keep the risk-free rate anchored around 6%.

Positive for equities, could be neutral for the debt market:

The pro-growth uncluttered approach, the commitment to reform and the resolve not to tinker with the tax rate really make the budget smart. The measures are positive for the equity market especially for infrastructure and other investment-oriented sectors, healthcare and financials. With tactical management of funding, the impact on the debt market would be neutral