• Stock market experts expect the start of fiscal consolidation in this budget

All eyes are on the announcement of Budget 2022 that will be introduced in the Parliament on February 1 by Finance Minister Nirmala Sitharaman. Stock market experts said that the market expects further momentum to reforms and growth in the upcoming budget.

“Both economic reality and political exigencies may nudge the government to roll out more supportive schemes for agriculture, the rural economy, micro, small and medium enterprises and social sectors. Indian corporates are doing much better than the overall economy,” said brokerage Anand Rathi.

Yet, with a longer-term vision, experts expect the start of fiscal consolidation in this budget. The fiscal deficit target is likely to be around 5% in FY23, down from 9.4% in FY21.

“Measures such as a corporate tax-rate cut, Atmanirbhar Bharat and production-linked investment schemes have helped. We expect these to continue rather than fresh measures for corporates. The government is attempting to boost growth through investment rather than consumption. This stance is likely to continue. We expect the budget to be neutral to marginally negative for equities in the near term, but positive for the bond market,” the brokerage added.

The Union budget is likely to announce steps to reduce tax litigation, boost compliance by greater oversight of transactions, and work towards the goal of bringing more firms into the fold of the formal sector.

“The markets ahead of the budget would be focusing on the government’s borrowing program and the fiscal deficit targets more importantly how credible these estimates are. The contained fiscal deficit for FY21 was supported by a pick-up in tax revenue and higher dividend and spectrum receipts. 6-6.5% would be a target number which would be cheered by the markets,” said Aditya Sood, Multicap Fund Manager, InCred PMS.

The government is falling significantly behind on its divestment target. Even assuming LIC divestment, InCred anticipates a shortfall of around 750 billion against the target of 1,750 billion. Any step-in direction which gives confidence to meet the divestment targets would be a positive, Sood added.

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