Budget 2021- Damned if you do, damned if you don't

Every time an Indian finance minister presents the budget, you will hear murmurs of "mujhe kya mila?" and "humare liye kya hai?" across the sections of the society. Even those getting the biggest pie that year would often feel the allocation is inadequate. Such is the need of a growing economy like ours. At the end of the budget speech, several "gurus" of economics and finance will put on their thinking caps and give their verdict: whether the budget was socialist or capitalistic? i.e. whether it benefits the poor and middle class more or the business class.

Today's splendid rally in the market (5% for Nifty) gave its own verdict that in true sense the market makers believe the budget is for the greater good for the revival of Indian Economy and specifically for the Equity markets. 

So, what happened in the budget? The words, the tone and most importantly the numbers showed that the government is keen on getting the economy back on track and through the fastest route possible. The proven fastest route of getting an economy back on track is for the government to spend on capital expenditure (Quick Fact: China's growth story into the world's second largest economy was through government spending on capital expenditure). As per today's speech we can expect these capital expenditure mostly in roads, highways, certain universities and research facilities, and in agriculture infrastructure like warehouses and cold storages, etc. These infrastructure investments by government generally have a multiplier effect when the private companies also start putting more capex into their businesses. When money flows into the economy through various channels and is primarily led by the government spending, most economists believe that this leads to sustainable and long standing growth of an economy. 

Now comes the question of how will the government fund these excess capex that it is planning. Good news is that it is not coming from additional direct tax. Phew! Then how? It will raise funds using borrowing (Note: Fiscal deficit to increase to 9.5%), disinvestment ( it means it will sell its shares to the public and collect money in exchange) and LIC IPO. (Quick fact: Disinvestment of IDBI, some public sector companies including 2 public sector banks and 1 general insurance bank is expected to raise 1.75 lakh crore for the govt.) (Quick fact: LIC is expected to have a market capitalization of over 8-10 lakh crore. Even if the govt sells only 10% stake of LIC, it can get a whopping 0.8 to 1 lakh crore revenue from it! To put things in perspective, Reliance which is the largest listed company in India currently has a market capitalization of 12 lakh crore.)

Coming back to the question of "mujhe kya mila?". Well to be honest, nothing in the short term for anyone except free covid vaccines for maybe 30 crore lucky Indians (based on budget estimates). We should be glad that there is no tax increases or even covid cess or capital gains tax for that matter. Although an agriculture infrastructure cess has been introduced in petrol and diesel, it will not make it costly for users as they have maintained the total cess and surcharges on fuel same as before. But in the medium and long term these policies will ensure growth in India is back. We all need to understand that unless the growth story in India is re-established, the corporate sector will not put more money in growing their business in India which will sooner or later affect many of our jobs and salaries & hikes and therefore these steps taken are critical to ensure the job cuts or salary cuts that we saw last year does not spill over to this year. While more money right now in our pockets did not happen, I think we should be glad the light at the end of the tunnel is finally visible. The pathway to regaining the growth trajectory has been laid. It is difficult for any government in India to not have socialistic policies and concentrate solely on growth. Its like saying instead of giving a bigger piece of pie to one segment or the other, the government is working on making the pie itself larger so there is a little more for everyone eventually. In that sense, and given the once in a century pandemic backdrop, it is indeed a budget like none before.

From the investor point of view, its always smart to align our investments in view of the macro economic policies and thus the budget lays the future roadmap for a few sectors which are expected to benefit most. They are infrastructure, cement, paints, banking stocks which focus on corporate loans, steel, real estate, health, agriculture (esp those like logistics, warehouse, cold storage, etc.), auto (based on vehicle scrappage policy), vehicle financing, insurance (due to privatization of 1 general insurance company), electricals, etc.

I welcome all comments! Please let me know in the comments below if there is anything you would like to discuss. Happy investing!

Disclaimer: We are not a SEBI registered investment advisor. Kindly contact your SEBI registered investment advisor before investing.