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'Growth oriented, boost for infra': How brokerages are reading Budget 2022

'Growth-oriented, boost for infra': How brokerages are reading Budget 2022

'Growth-oriented, boost for infra': How brokerages are reading Budget 2022
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By Sandeep Singh  Feb 2, 2022 3:34:27 PM IST (Updated)

Union Budget 2022: Most brokerages are viewing Budget 2022 to be growth-oriented with a focus on infrastructure. According to Goldman Sachs, the government's push on infrastructure remains the key theme of the Budget.

Indian equity benchmarks continued to rise on Wednesday as investors cheered Finance Minister Nirmala Sitharaman's Budget for FY23. In its Union Budget, which comes at a time when the economy continues to struggle against the fallout from the COVID pandemic, the government raised spending to aid growth. 

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The Finance Minister's fourth Union Budget was largely perceived to be growth-oriented with a push on infrastructure.
Morgan Stanley said the Union Budget 2022 lays out a gradual path to fiscal consolidation with a push for capex-driven growth and efforts to crowd in private capex. Goldman Sachs said the push on infrastructure remains the key theme of the Budget.
How brokerages are reading Union Budget 2022
Morgan Stanley said the Budget math is largely reasonable with potential upside for tax revenue estimates. The brokerage expects the country's growth in FY23 at 8.4 percent.
It expects RBI to start policy normalisation with a reverse repo rate hike in February. The brokerage sees a hike in the repo rate by the central bank in its April policy review.
The central bank is due to conduct a bi-monthly review next week.
The RBI's policy meeting comes at a time when its US counterpart has signalled a rate hike in March. The Fed has also reaffirmed plans to end its pandemic-era bond buys.
Goldman Sachs said the government's 35.4 percent raise in its allocation to the central capex is the highest in recent history.
 
Credit Suisse said that the government may have to lower its borrowing target and lower yields during FY23. 
CLSA said the Budget is growth-oriented but the focus remains on the supply-side. The brokerage raised its March 2023 forecast for the 10-year bond yield to 7.5 percent from 7.25 percent.
UBS said the Budget retains growth focus but goes slow on fiscal consolidation.
Winners and losers
Higher yields and lack of demand focus may further hurt the attractiveness of equities compared to bonds, according to CLSA.
The brokerage sees the Budget 2022 accelerating sectoral rotation from the expensive consumption and IT spaces to investment-focused pockets. It expects infrastructure, cement and capital goods sectors, along with cigarette-to-hotel conglomerate ITC, as gainers of the Budget. 
The defence budget should be seen positively for HAL, Bharat Forge and Larsen & Toubro, and the cut in rural employment guarantee negative for the cement, consumer and auto spaces, it said.
Jefferies said the Union Budget supports its positive investment thesis for the industrial sector, with Larsen & Toubro, Siemens and Thermax being its top picks. It believes L&T is likely to be a beneficiary of the government's Gati Shakti plan, which will be unveiled gradually.
It sees BEL as a key beneficiary of the government's 10 percent year-on-year increase in capex for the defence space.
According to UBS, the Union Budget for FY23 is good for the infrastructure sector but bad for valuations. It raised its 10-year government bond yield forecast to 7.5 percent.
 
According to Investec, cement, tiles, steel and pipe proxies will be beneficiaries of the Budget for FY23. It views the government's status quo on stainless steel duties as a negative.
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