The Union government not announcing any populist schemes in the interim Union budget 2024 ahead of the Lok Sabha election is "extremely commendable", brokerages have said.
Finance Minister Nirmala Sitharaman presented the interim budget on Thursday, with infrastructure spending and ease of doing business being among the key focus areas.
The interim budget surprised positively on the countercyclical fiscal consolidation front, while the details of the incremental capex growth assumptions appear to be somewhat underwhelming, according to Citi Research.
The government has refrained from any populist announcements, even in a pre-election budget, and the revenue projections have been done in a conservative and credible fashion, the research firm said in a note.
"The budget is fiscally tighter than market expectations, which is remarkable given the upcoming elections, with no new social scheme announced or expanded," Jefferies Financial Group Inc. said.
Here's What Brokerages Say On Interim Budget
Jefferies
The government's intention to boost the investment cycle could not have been clearer.
Capital expenditure is budgeted to rise 17% year-on-year in the next financial year in comparison to an estimated 1% YoY decline in non-capex, excluding interest payments, outgo — the key driver for fiscal consolidation.
The railway and the road capex are expected to increase only by a small 3% and 2%, but the government has kept aside Rs 705 billion or $8.5 billion for some new schemes, details of which will probably be shared in the final July budget.
This could include low interest financing for research & development projects to promote entrepreneurship or urban housing schemes, which will likely have a multiplier impact.
The tight fiscal also increases the possibility of policy rate cuts by the Reserve Bank of India. Jefferies builds in a 50-basis-point rate cut by the central bank in the second half of 2024.
The expectation around some rural boost in the budget was not met and, therefore, it is an incremental negative for rural plays, including staples and two-wheelers.
Citi Research
The derived government spending estimates from the budget indicate that the banking system liquidity stress should improve over the next two months.
It is up to the monetary authorities now to supplement the government efforts of crowding in private investment through a softer policy stance.
The already favourable backdrop for the rates market gets a further fillip from this interim budget.
Lower borrowing and likely faster-than-expected glide path towards the 4.5% medium-term fiscal deficit target will add to positive bond sentiments.
Citi Research says the announcements are positive for
PSU Banks, due to the lower fiscal deficit and government borrowing — eases wholesale rates — as it benefits them on the treasury mark to market.
For Cement, due to the higher outlay for affordable housing.
In Energy, deferral and reduction in size of capital infusion towards supporting energy transition is positive for the oil marketing companies — lower overhang from potential equity dilution.
It says the announcements are negative for
Autos and Consumer due to lower allocation towards rural-oriented schemes
Industrials & Infra on an estimated relatively moderate infra capex growth.
Motilal Oswal Financial Services
At a time when there were high expectations to announce measures to support the rural sector, the government kept revenue expenditure growth at just 3.2%, and propelled capital expenditure strongly for the fifth consecutive year.
Excluding interest payment subsidies, revenue expenditure is budgeted to grow 5.7% in the next fiscal, marking the slowest growth in 12 years.
Overall, notwithstanding the general election, the government ability to resist any populist schemes or incentives is extremely commendable.
Given the fact that it has budgeted a fiscal deficit of 5.1% of the gross domestic product for the next fiscal, the government looks serious about its task of achieving 4.5% of the GDP by fiscal 2026.
This clearly shows that the government is totally committed to long-term macroeconomic stability, even if it comes at the expense of growth in the short term.
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