Post Budget 2021: Which way will the stocks go?

Before the budget was announced, people of the country pegged 1st February as the most important day of 2021. After the pandemic hit the economy adversely last year, Indians had great hopes from FM Nirmala Sitharaman to give a budget which was a booster shot for the country’s economy, to put it back onto a positive growth track.
Before we delve deeper, let’s first understand, what is the annual budget and

why is it so important for our country?

The annual budget (also known as Union Budget) is a financial document used to project future income and expenses of the country’s economy, so we as a country can plan our savings and spending accordingly. 2020 was a terrible time for our country. The pandemic forced the economy almost into standstill and almost a recession leading to high unemployment rates and low manufacturing output. It is going to be a monumental task for the government to revive the economy after last year’s performance.

What are the major highlights of Budget 2021?

• Rs 64,180 allocated to improve healthcare
• Rs 35,000 allocated for CoVid 19
• FDI Insurance hiked to 74% from 49%
• Disinvestment possible in all strategic and non-strategic sectors
• Mission Poshan 2.0 announced for universal nutrition and health
• Rs. 3 lakh crore scheme announced to reform the power distribution sector
• Sectors to gain disproportionately- Capital goods, Infrastructure and financials
• Auto and pharma gain from policy tweaks (scrappage) and higher allocation
• Make in India boost: Higher Customs duty to benefit electronic goods manufacturers

How did the market react to the budget?

With hopes riding high on Nirmala Sitharaman, the market reacted positively to the budget after witnessing a 10% rise in the next 10 days post budget. As per industry experts, the budget was created specifically keeping in mind a boost to the country’s economy. The risk of keeping the fiscal deficit at 6.8% for FY22 with a 35% in capital expenditure is the sole solution to move the economy upwards Key sectors that will benefit from the budget include capital goods, infrastructure and financials, automobile, pharmaceutical because of higher overall expenditure and gems and jewellery due to customs duty reduction. The key sector to not benefit is iron and steel due to lower protection on account of reduction in customs duty.

Infrastructure and capital goods have a wide range of scope to grow. Emphasis is laid on Railways for electrification, security and push for capital expenditure, which is up 21%. This should help IRCON, RITES, KEC International, ABB and Siemens. Furthermore, higher capital expenditure and focus on efficient power distribution sector reform is likely to bring focus on KEC International, Kalpataru Power etc.

The automobile sector will witness a new vehicle scrappage policy which aims to replace commercial vehicles and passenger cars older than 15 years and 20 years of age. This is expected to benefit commercial vehicle manufacturers such as Ashok Leyland, Tata Motors, and Maruti.

Healthcare sector saw a sharp jump in allocation of 137% in this year’s budget!

Apart from CoVid 19 vaccines, the focus on creating health infrastructure with a 5-6 year time frame in mind is clearly a strong move. The target is to take total public health expenditure to 2.5% of GDP from current 1-1.3%. Budget 2021 also implemented changes in custom duties on number of imported goods to boost domestic manufacturers. Increase in customs duty on compressors for refrigerators and ACs appears as a positive for companies both in electronic goods manufacturing, as well as dealers of branded players.

Uday Kotak, a veteran banker and MD & CEO of Kotak Mahindra Bank describes the budget as “BOLD ONE” and said, “ The Budget ticked all the right boxes which would strengthen the path of recovery of the economy. Growth, not through revenue expenditure but growth through capital expenditure. The direction of the spend of the money is right and the decision to go out there and take the bold call, even if it means higher fiscal deficit—is the significant change in terms of the mindset that this budget has demonstrated.

In conclusion, there are positive reviews of Budget 2021. Nirmala Sitharaman and her team seem to have laid emphasis on taking our country back towards a high growth path.