The Budget clearly focuses on growth over fiscal consolidation.
It is a classic Keynesian push to help the economy tide over the growth missed out on in the pandemic times, said Abhishek Goenka, Founder & CEO, IFA Global.
“It is quite an expansionary budget in our view,” he said.
While the budget was expected to focus on CAPEX, the CAPEX budget at Rs 7 lakh crores would have surprised even the most ardent proponents of CAPEX, he said.
Impact on bonds
The higher expenditure and fiscal deficit (6.4 percent of GDP against most economists estimates of 5.8-6 percent of GDP) implies that the bond markets would have to absorb additional supply (Gross borrowing of Rs 15 lakh crore against expectations of Rs 13 lakh crore).
While the supply would increase, the demand which was expected to get a fillip due to bond index inclusion is not likely to materialize.
The finance minister did not make any mention of the same in her speech. This has resulted in a sharp sell off of around 20 bps across the curve.
The yield on the benchmark 10y has risen to 6.85 percent from around 6.65 percent heading into the Budget, Goenka said.
Impact on Equities
Equities have given up some gains tracking the panic and nervousness in bond markets. The Nifty was up about 1.6 percent into the Budget but its gains were later trimmed to 0.85% .
This is however we believe is a growth-focused Budget and should bode well for housing, infrastructure and allied sectors and the financial sector.
Impact on USD/INR
No mention of index inclusion and consequent sell off in bonds has weighed on Rupee. The Rupee had weakened to 74.87 (after strengthening to 74.41 into the budget) as stops got triggered but has recovered now to 74.70.
The fact that Rupee entered into the budget at 74.40 has helped keep a lid on volatility. In hindsight, It was perhaps a conscious move on the part of nationalized banks to stay away when USD/INR sold off pre-budget.
We expect the rupee to remain range bound in 74.30-75.30 over the next few sessions, Goenka added.