Business Standard

Street upbeat on infra focus, fiscal prudence


The Interim Budget on Thursday maintained the government’s focus on infrastruc­ture developmen­t while surprising the Street with its fiscal deficit target. In an election year, the government resisted the temptation to announce populist measures.

For 2024-25 (FY25), capital expenditur­e (capex) was raised 17 per cent to ~11.1 trillion. In FY24, capex was increased by 33 per cent. The fourth straight hike is expected to take the capex to 3.4 per cent of gross domestic product (GDP) ratio in FY25 compared to 3.2 per cent in FY24.

ICICI Direct Research said capex growth is on a high base of the last four years and has tripled in that period, resulting in a multiplier impact on economic growth and the moderation in the interim Budget was on expected lines.

Some analysts expected higher outlays for road, defence and railways. Among the larger capex sectors, spending growth on transport was limited to 3.6 per cent.

In addition to the spending on infrastruc­ture, the other positive for the markets is the

Interim Budget’s statement on fiscal discipline. The key takeaway was the aggressive fiscal deficit target of 5.1 per cent for FY25 compared to the market expectatio­n of 5.5 per cent. The government said it is on course to hit the sub-4.5 per cent number for the metric by FY26.

Its expectatio­ns are based on higher tax collection­s, dividends from the Reserve Bank of India and public sector companies, and control on expenditur­e.

With the fiscal deficit in check, the government’s market borrowing in FY25 is expected to be ~14.1 trillion compared to ~15.4 trillion in FY24. HSBC said small savings have played an important role in funding the fiscal deficit. The savings funded 27 per cent of the fiscal deficit in FY24 compared to 23 per cent in FY23.

However, India Ratings and Research said the system-wide capex growth hinges on continued recovery of state spending (up 42 per cent year-on-year in the first eight months of FY24) and hope of accelerati­on in tentative recovery in private sector capex. The states account for two-thirds of overall capex.

The street’s fear of populist measures was unfounded given that tax rates were left untouched.

Further, the interim Budget reduced the overall subsidy outgo in FY25 on the back of a reduction in fertiliser subsidy.

Lower market borrowing is a major positive as the government hopes it will lead to higher private sector borrowing as yields come off.

Stocks of state-owned banks reacted positively to the government’s move on net market borrowings which coupled with fiscal prudence would result in mark-tomarket gains for the bond portfolios of these banks.

In a flat market on Thursday, the Nifty PSU Bank Index was the biggest gainer among sectoral indices by jumping 3.1 per cent.

Among other sectors, sentiment was also positive in the logistics space as the three largest listed companies by market capitalisa­tion registered gains between 1-5 per cent.

The interim Budget announced a new housing scheme for the middle class as the ongoing Pradhan Mantri Awas Yojana (Grameen) aims to build crores of new homes.

The proposals for housing and infrastruc­ture developmen­t are expected to boost the real estate and building materials sectors.

However, the Nifty Realty and the building materials companies ended in the red.

The interim Budget did not have major measures in the consumer space. Consumptio­n is weak, especially in rural India, as indicated by corporate earnings for the last few quarters. The Budget doesn’t provide any nearterm solution for quick revival for consumptio­n, said Motilal Oswal Financial Services.

The ongoing earnings season and the credit policy next week remain the key triggers in the near term.

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