All Eyes on Union Budget 2022
Over the last two weeks, the market’s climate has shifted dramatically. It was a partly cloudy sky when we switched calendars around four weeks ago but no one had predicted the hailstorm that the markets have been witnessing in the past seven trading sessions. A mammoth 7 per cent drop in the benchmark Nifty is hardly revealing of the damage done to equity investment portfolios as the action has largely occurred outside of the Nifty. Such has been the state of affairs on D-Street that out of the last seven trading sessions the market has closed in red for six trading sessions and active market participants have got kicked in the teeth.
The fall was so fierce and widespread that the new-age technology companies were not spared too as many of these firms that have listed on the stock market in the last six months traded below their listing price. A host of factors such as FIIs pulling out money from the Indian markets, global inflation, geopolitical tensions and anxiety over the Federal Reserve’s expected policy changes and budget presentation resulted into this deep plunge in the markets.
After its latest two-day meeting, the FOMC announcement was in line with expectation where they kept the rate unchanged. But the press conference was essentially the most hawkish it has ever been under Chairman Jerome Powell. So, let’s get into exactly what happened: the statement signalled that a first-rate hike is likely to come up in the month of March. This was as expected but there are two or three things that need attention as far as the press conference is concerned. One is the pace of rate increase – a question put forward to Powell.
With respect to the pace of rate increase it would it be assumed at 25 basis points in every meeting or it could be faster than that without any pushback. And we believe that market participants have read between the lines and understood that not only is the pace going to be faster but even a 50-basis point in one of the meetings is not ruled out, Now the question is will it be March? We don’t know but he’s not pushed back against that idea completely and this once again has kept market participants in an uncertainty mode. And as is well-known, market participants hate uncertainty.
Moving on to the second key event which market participants are looking forward, it’s the Union Budget which will be presented on February 1, 2022. Expectations run high from the government to fulfil the aspirations of all sections of society. The last couple of years have been challenging for individuals and the economy as well and the government has time and again announced several measures in the budget and outside as well to combat the dent caused by the pandemic. It was a hand-in-glove effort by the government and the RBI that has helped the economy to witness a decent recovery over the past few quarters.
In the upcoming budget as well, we expect the government to continue its focus on reviving the economic growth by increasing spending on key sectors. We believe that the underlying theme will be similar to last year with a focus on increasing capital expenditure in key social sectors such as infrastructure, housing and healthcare. The government’s top priorities will continue to be job creation and restarting the private investment cycle. Talking about the mammoth disinvestment target set by the government of Rs 1.75 lakh crore for FY22, it may short fall if the LIC IPO is delayed until next fiscal year. Market participants will be all ears to information related to LIC IPO in the upcoming budget.
We anticipate a similar target for disinvestment in FY23 and a few new names may be added to the existing list of disinvestment or privatisation candidates. It would be important to watch out whether the Union Budget could be the last nail in the coffin for the bulls or it would help to reinstall the confidence back among the market participants. We believe the latter could turn out to be true. Technically, the Nifty has not breached its panic low which was created on January 25 and it is trading above its 200 DMA and as long as the 200 DMA which is placed at the 16,627 level and the low of December is intact the bulls stand a chance to revive themselves.
