For the markets, the biggest positive from the Budget 2023 proposals is that there has been no change in the long-term capital gains tax (LTCG) and the short-term capital gains tax (STCG) structures. In our view, though, the fact that government expenditure on infra remains high along with the positive surprise on personal tax rates (should help consumption) are powerful tools for economic growth to accelerate in the years to come.
The focus of the budget is on capex with more funds being allocated to railways and affordable housing schemes. The measures, overall, will push private capex higher at a time when the global economy is facing recessionary headwinds. The proposals focus on the domestic economy, and we firmly believe these proposals will push economic growth higher going ahead. Foreign investors, too, will take a positive view of this given their concerns about global recession and the recent developments back home with respect to the Adani group, which have hurt market sentiment. The change in personal income-tax structure, on the other hand, will also give a boost to consumption as it will give more money in the hands of spenders.
Investors will also note that the budget was not so populist (another fear) despite the fact that there are many state elections this year as well as a general election in. So, all in all, investors will like the continuity of previous budgets with the focus on growth and credible assumptions for bringing down the fiscal deficit
For global investors, they were already looking at emerging markets and India was always on their radar. The Budget 2023 proposals will put India firmly back on the foreign institutional investor’s (FII’s) radar. This may happen in the second half of calendar year 2023 (H2-CY23) when the earnings upgrades start to happen. That said, the current market valuation seems to be high, which may remain a deterrent for many investors in the short-term.
Overall, we believe the budget is pushing for domestic-led growth and in this backdrop, we are focusing on domestic-related companies, i.e. companies that derive a bulk of their business from India and will benefit from the consumption boom, hotels, services and electronics. Other themes in the investment list are companies that will benefit from a higher capex. So, defence, electronics, railways and infrastructure-related stocks are on our radar, which we think should do well.
Andrew Holland is CEO, Avendus Capital Public Markets Alternate Strategies. Views are personal.
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