I would consider Finance Minister Nirmala Sitharaman's Budget this year as one of the best in recent times. The focus is on providing enough money for growth and investment which will create jobs and will aid faster economic recovery. In addition to that there has been no negative announcements for taxpayers or anybody for that matter, which has helped overall sentiment.
The market is relieved and enthused about the fact that there is no Covid-19 tax, no increase in long-term capital gains tax, no wealth tax. The fear of multiple taxes was weighing but none of them have come true. So, the Finance Minister has acted prudently to ensure that the Budget doesn’t spook the sentiments as it is very crucial to raise money for disinvestment as well as for privatization.
On divestment front, I believe Finance Minister's target of Rs 1.75 lakh crore for FY'22 in her Budget speech is quite conservative and can be very well overachieved. The target includes divestment of two state-owned banks and one insurance company. In FY21, the FM had budgeted a target of Rs 2.1 lakh crore but missed it as the pandemic affected the government's plans.
I also believe the actual debt can be kept under control by overachieving disinvestment and privatisation targets. Also, I will not be surprised if there is a sovereign bond issue. Considering, about $18 trillion - $20 trillion of bonds in the global markets offering negative yield, it’s a great time for government to raise money at a very low rate from overseas market and fund the growth in the economy this year.
In terms of how Budget will impact markets, I believe there can be all round recovery, a few sectors will perform for some time and then we will see the cyclical turn of other sectors. The real economy facing sectors or the sectors which are dependent on domestic or dependant more internal economy should do well, primarily because their valuations are more attractive and they had not participated in the rally earlier, so they should catch up now.
If we talk about banking sector it is a proxy for the economy and when you see a V-shaped recovery in the economy which is getting its momentum from the Budget and the huge amount of capex and money that is laid out, I think banks will do well.
Also, banks are liquid, so when there is a large bout of money coming to markets, first they will chase banking stocks and also banking stocks had corrected. In terms of valuations earlier they were really very expensive compared to rest of the markets, because if you see in the last couple of months’ rally has been led by other sectors like pharma or steel or IT. I think all these factors are converging to help a rally in banking sector.
(Nirmal Jain is Founder and Chairman of IIFL Group. Views are personal)