How to play Budget 2023-24

Expectations drive financial markets. Credit markets look forward to the cues on interest rates and inflation, while equity markets look to those about corporate profits. It is the final full budget that finance minister Nirmala Sitharaman will present on 1 February 2023 before the general elections in May 2024. There are expectations from all segments of the economy.

Businesses want lower taxes and incentives to invest more and expand operations. The salaried class looks forward to tax breaks or incentives to pay less. With a mere 3% of taxpayers in a country of 140 billion people, the government faces a daily challenge in managing finances. The latest data on tax collection shows robust direct and indirect tax collection. For example, according to one report, direct tax collection is close to 90% of the Budget 2022-23 target as of 10 January. There is a good chance that the government could exceed direct and indirect tax collection this year.

On the other hand, the government continues to spend on infrastructure like roads, railways, bridges, metro rail, airports and other vital sectors. At the same time, government-sponsored programmes continue to provide subsidies for food and fuel to the poor. Public sector enterprises are doing the heavy lifting of the government’s capital expenditure programme.

The overall emphasis of the government is to expand the balance sheet without stoking inflation. For that purpose, the government could set a lower fiscal deficit target for 2023-24.

That is good news for the corporate sector, as a reduced fiscal deficit would lead to lower market borrowing from the government. There will be adequate liquidity in the financial system for corporates to borrow for expansion.

The spending on infrastructure is expected to stimulate demand for goods and services for sectors like infrastructure, engineering, steel and cement. Consumer prices must stay low, and people need jobs to boost rural and urban consumption. That should create more demand for goods and services in the consumption sectors like FMCG, consumer durables, travel and tourism and financial services.

For 2023, the IMF considers India a bright spot. Driven by the rapid growth of digital infrastructure and financial inclusion, India can push faster growth amidst a global slowdown.

What you can do

There is a lot to play for in 2023 in the stock market. Indian share prices are at a record high at the moment. The valuations are not cheap. Other markets like China and the US technology sector companies were beaten down in 2022. They are outperforming Indian equities already in January 2023. Identifying companies that would ride on India’s growth is crucial to your investment strategy. You can do that by looking at companies that depend on domestic growth for the business. It would take an effort to identify stocks that look promising and are cheap in terms of valuation. The other option for you is to work with us. Alphaniti can help you navigate and identify winners of Budget 2023.

How to play Budget 2023-24