Budget 2022: Financials to gain from capex push, digital rupee, say experts

Banks and NBFCs stand to gain from the Union Budget as a new growth cycle on the back of the massive capex plan has the potential to crowd-in private investment, say analysts

The shares of financials, including banks and non-bank financing companies, were ruling on the bourses on Wednesday as analysts expect Budget proposals for fiscal year 2022-23 to result in healthy credit growth, higher revenues, and improved margins.
 

The Nifty Bank index was one of the top performing sectoral indices in trade today, rising nearly 2 per cent intra-day. Among individual stocks, IndusInd Bank, AU Small Finance Bank, Kotak Bank, Axis Bank, and IDFC First Bank gained between 2 per cent and 4 per cent.
 

Among NBFCs, Bajaj twins, HDFC AMC, M&M Financial Services, ICICI General Insurance, and Muthoot Finance were up in the range of 1 per cent to 4.4 per cent.
 

According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, banks and NBFCs stand to gain from the Union Budget as a new growth cycle on the back of the massive capex plan has the potential to crowd-in private investment, leading to acceleration in the nascent credit growth. 
 

Finance Minister Nirmala Sitharaman, on Tuesday, increased allocation towards infrastructure development in a bid to propel economic activities. While capital expenditure has been increased by 35 per cent to Rs 7.5 trillion in FY23 and a 10 per cent upward revision to FY22 estimates, the cumulative budgetary support for Roads & Highways has more-than-doubled to Rs 1.34 trillion. Revival of infrastructure development activities will propel growth of several ancillary industries, analysts believe.
 

"Government's growth push approach should kick-start the capex cycle sooner than later. This is especially in the backdrop of structural policy initiatives (labour law reforms, PLI, etc), competitive corporate tax rates etc, conducive investment climate, ample balance sheet resources (to absorb capex spend) and corporate asset quality cycle nearing its end. Indian financiers, too, have saddled themselves with ample liquidity/capital buffer to tap the emerging opportunity," said Kunal Shah, research analyst at ICICI Securities, in a co-authored note with Renish Bhuva and Chintan Shah. 

 

They added: It reaffirms our stance that we are at the inflection point with respect to credit growth outlook. Re-leveraging cycle will be beneficial for lenders (in general) and leading banks like SBI, Axis Bank, HDFC Bank, and Kotak Bank (in particular).

Apart from the capex push, FM Sitharaman also announced certain measures, directed specifically towards the sector. These included extension of the ECLGS scheme by a year and increasing the cover by an additional Rs 50,000 crore; upsizing the Credit Guarantee Trust Scheme for MSME; proposal to link the post office with the core banking system and setting up of digital banking units; and proposal to introduce digital rupee. The government further announced some operational measures with regard to the IBC code (to enhance corporate resolution and facilitate the cross-border insolvency process) and other regulatory frameworks.

Against this backdrop, analysts at Motilal Oswal Financial Services pointed out that the extension of the ECLGS scheme, along with the revamping of the CGTMSE scheme, would provide further impetus to the MSME sector – which has borne the brunt of the pandemic. 
 

"The thrust on infrastructure spending and higher government capex is a positive for commercial vehicle (CV) financiers. Also, higher fiscal deficit projections have adversely impacted bond yields and which could drive higher mark-to-market (MTM) provisions for banks (mainly PSUs) on their investment portfolios as well as lead to higher borrowing costs for NBFCs. We maintain our overweight stance on the sectors and prefer ICICI Bank, SBI, Axis Bank, SBI LIFE, AU Small Finance Bank, Muthoot Finance, and Angel One".
 

However, analysts at Centrum Broking highlighted that its interaction with bankers suggested that incremental disbursals under the ECLGS scheme would not be material as most of the troubled SMEs have already received credit support. 
 

From Digital Currency view point, analysts at Reliance Securities said the introduction of digital rupee may support higher banking transaction on trading in digital currency and currency exchanges.
 

Separately, the finance minister announced that 8 million houses will be completed for identified beneficiaries under Pradhan Mantra Awas Yojana (PMAY) in FY23 with a capital outlay of Rs 48,000 crore.
 

"This is potentially incrementally beneficial for banks with affordable housing finance businesses as portion of the housing finance business of most banks would fall under affordable housing. Though, the benefit may not be large in the context of the overall balance sheet size of large banks," cautioned Reliance Securities.
 

Meanwhile, the proposal to enhance corporate resolution and facilitate the cross-border insolvency process will benefit banks that have overseas exposure such as ICICI Bank and SBI, said a report by Sharekhan.
 

Overall, an uptick in credit cycle and expansion-led increment in private capex should augur well for lenders, especially in the business of financing capital intensive industries of infrastructure, utilities and capital goods, said Fisdom Wealth. 
 

An uptick in demand for residential real estate will benefit financiers in the form of higher revenues and improved margins, it added.