Against the backdrop of a provisional budget lacking growth-oriented objectives, the rather conservative 11% augmentation in capital expenditure, in contrast to the revised target of 28%, may not engender widespread optimism. However, it has set off the market for the next rally in anticipation of the final show on the July budget. This is attributed to the authoritative tone and narrative of the statements, which convey a firm grip on economic matters and a commitment to implementing forward-looking measures. Notably, the market exhibits growing confidence in the current government’s electoral prospects, fostering expectations of a heightened focus on capital expenditure in the coming years.
Key Statements in the Interim Budget Impacting the Market
Some statements in the interim budget have significantly influenced market sentiment:
Drastic Drop in Fiscal Deficit:The announcement of a drastic drop in fiscal deficit to 5.1% in FY25 has caught the attention of investors, indicating a more stable economic outlook.
Government Economic Policies:The government’s pledge to adopt economy policies to foster and sustain growth has instilled confidence in investors regarding future economic prospects.
Unprecedented Development:The promise of unprecedented development over the next five years has buoyed market sentiment, indicating potential opportunities for growth.
Priorities:The emphasis on priorities such as the welfare of the poor, women, youth, and farmers has resonated with investors, reflecting a commitment to inclusive growth.
Vision for 2047:The vision of a developed India by 2047 has provided a long-term perspective, aligning with investors’ interests in sustained growth.
These factors collectively contribute to the continuation of the pre-election rally, despite potential volatility due to foreign institutional investor (FII) sell-offs.
Market Dynamics and Challenges
While India has outperformed other Asian markets in the past, FII outflows and high selling volumes in sectors like banks and IT are currently affecting market performance. The country’s premium valuation is experiencing moderation, with estimates settling at mid-double digits for FY25-26.
Furthermore, the reduction in bond yields following the interim budget has positively impacted equity valuation, corporate earnings, and capital expenditure. However, a sharp decrease in the fiscal deficit implies a potential reduction in government spending for FY25, posing challenges for economic growth.
The interim budget’s conservative stance is viewed as a precursor to more significant growth measures in the final budget. Analysts anticipate a focus on efficiency improvement, productive capital expenditure, and borrowing control to stimulate economic growth. The commitment to addressing key priorities underscores the government’s determination to foster inclusive development.
Vinod Nair, Head of Research at Geojit Financial Services, provides valuable insights into the market dynamics and potential investment opportunities.
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