What is it that the markets have liked about this Budget? Would you say this relief rally is because we went into the Budget so light and corrective?
First of all, the finance minister has taken the bold step of raising the fiscal deficit up to almost 7%. It is a very challenging task. She has taken the bull by the horns. The second is while agreeing to take fiscal deficit up, she has made a very smart choice by increasing infra allocation by 35% to Rs 5.5 lakh crore. So, the quality of the expenditure is good. The third is dealing with the problems of financing growth. We have been talking about the bad bank proposal. So imagine the burden lifting if the really incorrigible bad assets are going to be taken and sold at a discount. That is a huge plus.
Fourth is to target the foreigners. There were knots tied around sovereign wealth funds, around retirement funds with double taxing. The government has removed that. There were knots in FDI in insurance. The insurance industry is very capital intensive and they have allowed not only FDI to 74% they have allowed control with certain conditions to foreigners in insurance. So, the insurance sector is really going to explode now.
If you look at it, she has maintained a reform-oriented path even in a year of distress. She has also said that we will target the FRBM in a slightly delayed fashion. Overall, the preparation of the Budget has been excellent.
There was a fear that somewhere a Covid cess would come up and I would attribute that fear to the market correcting in a significant manner. But the absence of any additional taxation, has been a big relief and I think that is where the market is voting with its feet today.
I would say that I would rate this budget at 8.5/10. Yes there is still stuff which we would have liked her to do and so I would not give 10 out of 10. But the market rally is partly because the market had discounted the budget saying she cannot do all of this.
Has the budget done enough for the FIIs to come back?
Look at the composition of the FIIs. There is one sector of hedge funds but there are also pension funds and retirement funds. She has given a break to those retirement funds in terms of taxation. Second, all the reform is actually going to translate in action in FY22-23, FY23-24. Long-term FIIs would view this as saying India is back, it is probably going to be the fastest recovering economy.
The finance minister also showed pragmatism by projecting only a 14.4% nominal GDP growth. Now with inflation at 4.5-5%, we are talking about a real GDP growth of 9-10% but everybody is expecting 11%. She has been conservative on that front too. So, it is not that the fine print is revealing very negative surprises on the basis of her assumptions.
The foreigners will get comfort from the fact that these numbers are based on fairly realistic assumptions of a bounce back and not in the air.
Any new opportunities or any reallocation that you would be looking at?
I have always been a bull on cement as you know but in recent months, we were not adding on to cement. We were just holding our positions. But now it is time to add cement back on my books in a big way.
So, cement, steel and EPC contractors because all of this infrastructure is going to need a lot of order books. That is the broader play which we will start adding back on.
Second is auto. That the scrappage policy has come through, is also good for the auto segment.
