Budget disappoints global financial majors


The Union Budget presented last week has received a rather subdued response from global financial majors who feel that the it did not offer any major stimulus, as a result of which economic growth may remain muted longer than expected.

They also feel that execution would be the key challenge as the government has unveiled an ambitious privatisation plan, which faces many headwinds.

Bank of America Merrill Lynch (BofAML) said the markets will shift focus to earnings, among other things, as the Budget did not offer any major stimulus.

“We think the markets’ disappointment with the Budget will last a short while, post which MSCI India should continue to move with EM [emerging markets],” stated a report by BofAML, while highlighting the fact that the relatively modest cut in tax collections implied that the stimulatory impact of the measure on consumption or demand is likely to be small.

On February 1, when the Budget was presented, the benchmark Sensex lost nearly 1,100 points in intraday trading though it has recouped the losses in the sessions thereafter.

Credit Suisse’s view is that “growth may remain subdued for longer than market expectation, and that lower interest rates remain a necessary condition for growth revival.” It added the Budget had provided no stimulus to revive rural consumption — a key factor for the fast moving consumer goods (FMCG) sector — as the total budgeted rural expenditure is largely flat year-on-year.

Thus, there is no stimulus for improving FMCG rural growth which is at a 15-year low, it said.

Goldman Sachs said execution would be key for the government due to an ‘ambitious privatisation plan.’

“The execution of privatisation plans was weak in FY20, and has historically been the case… The intent on privatisation is clear, and we think the plan to sell a part of its holding in Life Insurance Corporation (LIC) is a welcome move — what markets are looking for is greater progress in implementation,” stated the report by Goldman Sachs.

In a similar context, BofAML believes the government’s divestment target implies full privatisation of several state-owned entities, which could face issues such as the limited capacity of the market and the government to manage such large offerings along with the complexity of each potential deal.

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