By Sanjeev Sharma
New Delhi, Feb 2 (IANS): Measures to boost private consumption are limited in the Union Budget. Personal income tax related measures such as tax cuts, hike in standard deduction, and higher MGNREGA spending would have made an immediate positive impact on consumption, Morningstar Investment Adviser India said in a report.
The government continues to focus on boosting capex to support economic growth. This should also help to crowd-in private capex which is lagging.
Equity markets reacted positively to the budget as sectors such as capital goods, steel, cement and healthcare are expected to gain from the measures announced. Thrust on capital expenditure led by government, improving export attractiveness, low cost of credit, expectations of increased consumer spending, and housing market recovery with improving affordability levels are expected to support high corporate earnings growth (20-24 per cent) expectations for FY2022-24. Much of this would be dependent on the revival of private consumption which continues to remain sluggish.
After hitting lows in March 2020 at the onset of the pandemic, markets witnessed a strong recovery largely driven by cyclical sectors, making valuations look stretched, particularly for mid and small-cap equities, the report said.
However, markets have witnessed some correction recently on concerns over faster tightening by the US Fed to combat a surge in inflation amid persistent supply-chain disruptions.
Our valuation implied return estimates for markets and asset classes, when compared to its long term or fair return, helps us decide whether the market/asset class is attractively priced. At the current juncture, we continue to favor domestic large cap equities over mid and small cap equities, where we are slightly underweight as compared to our neutral/benchmark allocation, it said.
The revised Fiscal Deficit in the current year is estimated at 6.85 per cent of GDP as against BE of 6.8 per cent. The Fiscal Deficit in FY23 is estimated at 6.44 per cent of the GDP. Higher than expected government's net market borrowing programme for FY23 at Rs 11.69 lakh crore vs Rs 8.76 lakh crore for FY22 has negatively impacted G-sec yields. The RBI may need to re-introduce measures such as OMO purchases, etc, to manage yields. In the near term, the 10-year benchmark G-sec yield may continue to trade at elevated levels in absence of any intervention by the RBI.