They have some concerns, too
The markets have been on fire after Finance Minister Nirmala Sitharaman presented Budget proposals for FY22, the S&P BSE Sensex surging over 3,500 points in just two sessions. Most brokerages have given the thumbs up to the proposals, calling them ‘pro-growth’ that will entail a capex-driven revival of the Covid-hit Indian economy.
Here’s how leading brokerages have interpreted Sitharaman’s ‘never before’ Budget 2021:
Goldman Sachs
FY21 and FY22 fiscal deficit would be significantly higher than expectations. The underlying spending pace is projected to fall in FY22, despite robust capex spending -- with a lower overall fiscal impulse to growth than in FY21. The Budget was more positive for equities, less so for bonds given larger-thanexpected supply and the slower pace of deficit normalisation.
UBS
The announcement of higher public sector capex is positive for infrastructure, cement and auto (L&T, Ultratech, and Ashok Leyland). The announcement of a “bad bank” to address the stressed asset situation is positive, but a lot will depend on the size and type of consideration (cash or security receipts).
Nomura
The government’s decision to accelerate spending, a volteface from its earlier strategy, reflects its view of higher multiplier effects during the unlock phase and higher growth as a pre-condition for debt sustainability. Revised targets suggest government spending will be frontloaded and rise by 5560 per cent YOY in the final quarter of FY21. At the margin, we believe rating agencies may view the Budget as slightly more negative, given their focus on medium-term fiscal finances. Of the two rating agencies with a negative outlook for India, we believe the Budget may have increased the probability of a downgrade from Fitch.
Jefferies
The Budget marks a clear change in the government’s stance from fiscal conservatism to growth orientation. The fiscal deficit for FY22 is pegged at 6.8 per cent of GDP, about 150 basis points higher than Street expectations. Higher expenditure is geared towards capex. The government seems committed to reforms like strategic disinvestment, including state-owned banks, and higher FDI in insurance. Our view on cyclical recovery gets a further push. Overweight on banks, property, industrials and materials.
Credit Suisse
Headline deficit is higher than expected, but partly due to the inclusion of extra-budgetary spending, partly due to conservative revenue expectations, and ambitious expenditure targets. The fiscal deficit is higher than expected and will impact yields, but improved growth outlook likely to aid recovery in loan growth.