Union Budget 2022-23: Understanding the Budget from equity market reaction

Public investment to continue to pump prime private investment and demand in 2022-23

Union Budget 2022-23 has been pegged as a growth-oriented Budget as Capex has increased substantially for FY23. The government is likely to do the heavy lifting in terms of Capex and is budgeted to spend Rs 7.5 lakh crore towards this. Now, let us see how the equity market has interpreted the result by assessing the change in the key sectoral indices before and after the presentation of Budget 2022. We took pre-Budget (10.30 am) key sectoral indices’ reading and compared it with the post-Budget (3.30 pm).    

When it comes to sectors that are positively impacted by the Budget, Metal is definitely the clear winner. Higher capex is going to have a positive impact on this sector. FMCG is another sector that has moved up primality because of its contribution by ITC as there was no negative news for tobacco industry. Healthcare and pharma indices are also best performing sector as announcement in Budget regarding rolling out of National Digital Health Ecosystem.

Banking stocks, especially PSU banks, were the worst-impacted. They saw a negative change of 1.5 per cent between 10.30 am and 3.30 pm (pre and post-budget). One of the reasons for such a performance is definitely due to the fact that nothing has been announced in terms of capital infusion towards them or any privatisation plan. Besides, rising bond yields have also impacted them as their treasury income will get impacted. The key benchmark bond yields are now currently trading at 6.853 per cent, up by 2.53 per cent in today’s trade.   

One of the key themes of these losers is that most of them are interest-rate sensitive. There are other factors also that led to such an under-performance but the rising bond yields remain the key theme.