Rahul Bhuskute is the Chief Investment Officer at Bharti AXA Life Insurance
While analysing Union Budget presented by the Finance Minister on February 1, Rahul Bhuskute, Chief Investment Officer at Bharti AXA Life Insurance, said the government has tried to balance its growth ambitions with its commitment to the fiscal glide path, lowering the fiscal deficit in FY23 to 6.4 percent from 6.9 percent estimated in FY22.
On the other hand, the key aspects missing out from the Budget were the bond index inclusion and thrust for rural economy, he said in an interview to Moneycontrol. “The bond index inclusion would have answered a lot of questions around government’s ability to borrow for spending and after being regularly given guidance on that, the markets expected something more tangible.”
Edited excerpts:
What is your rating for Union Budget and why? Has the budget met your expectations?
The Union Budget FY23 has been a continuation of the journey set out by last year’s budget. While that budget was transformative in the way it changed the pivot of government’s focus from fiscal consolidation to GDP growth, this budget was more a re-affirmation of that trajectory in the face of perhaps more challenging market conditions. To that extent, one would commend government’s steadfastness in following through its stated path.
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The budget calls for a strong 25 percent YoY growth in capital expenditure in FY23 to Rs 7.5 lakh crore. Government continues to rightly take the onus on itself to start the capex cycle, given the private sector’s limited capacity to do so in the face of muted demand and lower capacity utilisations. The nudge to states by giving an additional Rs 1 lakh crore outlay is also welcome, though the ability of states to contribute to the capex cycle remains to be see.
There is enough space for positive surprises, especially on the tax collection front for both the remaining quarter of this financial year as well as the next one – the government could therefore deliver lower fiscal deficits than expected numbers. To that extent, I would say it is a conservatively placed budget, though there are some questions around the bond market’s ability to absorb the additional borrowing.
The key aspects missing out from the budget were the bond index inclusion and thrust to rural economy, in the face of challenges that part has faced due to Covid. The bond index inclusion would have answered a lot of questions around government’s ability to borrow for spending and after being regularly given guidance on that, the markets expected something more tangible. The disappointment can be seen in the yields going up by 10-20 bps at the longer end of the curve.
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Do you think it is a growth-oriented budget?
This is a budget that is definitely focused on long term structural growth. In addition to strengthening infrastructure in the country, the budget emphasizes investment in digital and technology assets, which are critical to raising economic growth. The government has tried to balance its growth ambitions with its commitment to the fiscal glide path, lowering the fiscal deficit in FY23 to 6.4 percent from 6.9 percent estimated in FY22.
States have also been given more fiscal room to spend on capex, hence we can see more state level spending on infrastructure, which can further boost economic growth. The government continues to do the heavy lifting in terms of capital spending in the economy, through its budget, though this should provide an impetus to the private sector to eventually commence to pick up on capital expenditure. As the Finance Minister reiterated, the expectation is that public investment eventually crowds-in private investment.
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What are the most surprising announcements made by the Finance Minister Nirmala Sitharaman in her budget speech?
There were no significant surprises in the Budget. The thrust on capital spending, in line with what this Government has focused on over the past few years, continues this year as well. In our opinion, the budget seems rather realistic, with the Government taking a more conservative approach to revenue and growth expectations (for instance, nominal GDP growth is estimated by the government at 11.1 percent which could well surprise on the upside).
Have you spotted any negative announcements (with respect to equity market, FIIs, retail investors etc) in the budget speech?
The equity markets should be happy with the continued growth orientation of the government, though they are waiting for the capex cycle to be more deep and wide than at present.
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For the bond markets and FII investors, there was a negative surprise in the form of nothing being there on the bond index inclusion side. This would generate annual flows of $ 15-25 billion in the Indian bond markets. Given the low ownership of FII of Indian bonds, and the government’s higher-than-expected borrowing number, such a move does not seem only desirable but imperative going forward.
Especially after budget, what are the sectors to bet on or sectors that one must have in portfolio, And why?
We remain positive on sectors like Financials, Infrastructure, Industrials and Auto on the back of the budget. These industries will benefit from the higher capital spending while the Auto sector will get a fillip from Government’s intention to encourage electric vehicle adoption.
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Do you think this budget has put a clear roadmap for India to achieve $ 5 trillion target by 2024-25?
That depends on implementation of the government’s vision – both from the Centre to the states. The budget has laid out the foundation of the capex story – one would assume the government has clearly set its sights on the $ 5 trillion number as an important milestone in its growth journey. Hopefully, the capital expenditure and domestic manufacturing incentives planned for FY23 create strong infrastructure and industrial growth, which in turn spur employment and consumption.
Are you happy with the government’s divestment programme set in the budget 2022?
The Government is targeting a divestment target of Rs 65,000 crore in FY23 which we believe is achievable. The revised FY22 target of Rs 78,000 crore is also reasonable, as it includes potential part divestment of LIC India.
Clearly, the ambitions have been scaled on this line item. Rather than putting out numbers which cannot be met, this is welcome. Of course, what could have been better is if the government could have actually shown more disinvestment.
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