The markets have given a big thumbs up to Finance Minister Nirmala Sitharaman’s first budget in the post-pandemic era.
Sensex30 was up by 2,314.84 points (+5.0%), while Nifty50 was up by 646.6 points (+4.74%) at close of day. Bank Nifty zoomed a record high of 8%. This is once in a lifetime jump witnessed on the bourses on Budget Day.
A short and sweet reason for the increase in markets is ‘no bad news is good news’
Post the pandemic and worsening fiscal math, markets were expecting a harsh budget in terms of increase/introduction of taxes, tightening of spending, more interventionist policies to maintain fiscal deficit targets.
However, the speech was a pleasant surprise. It was in very plain and simple english, no jargons, no fine print queries, no negative surprises, no financial jugglery.
On the contrary, it provided a long rope on fiscal deficit, increased spend on both infrastructure as well as social sectors, spelt out incentives for practically all sectors from startups to aviation, from MSMEs to PSUs, from proprietorship to MNCs, from trust to sovereign funds.
Some of the key reasons why markets jumped like never before on Budget day ending days of losses have been listed below:
1. No introduction of new taxes or increase in tax / cess due to 2020’s pandemic year.
2. Government taking a lead in sustaining the spend in the absence of private sector capex and subdued consumption led demand. The spend is likely to sustain beyond 2021-2022 as reflected from the higher fiscal deficit numbers (4.5% in FY 2025-26).
The serious government intent is reflected in modifying the FRBM Act to the extent which stipulates a ceiling of 3% for fiscal deficit as a % of GDP.
3. Privatisation of operational assets which provides assured cash flows / annuity type income through transmission, road, rail, ports, airports, warehouses, gas/oil pipeline assets. Such types of assets are in vogue amongst foreign investors especially pension and sovereign fund managers.
4. Creation of a Development Financial Institution (DFI) with initial capital of Rs. 20,000 crore from the government. It is envisaged that the bank will have a portfolio worth Rs 5 lakh crores by the end of 3 years.
5. Introduction of vehicle scrapping policy (for both commercial as well as passenger vehicles) which could trigger a growth multiplier in the auto, auto ancillaries, services, financing and related industries.
6. Setting up of a bad bank which will take over stressed assets from Public Sector Banks and spur these PSBs to start lending more to the corporates thereby commencing the growth capex. In addition to this, Rs 20,000 crores will be infused to recapitalize some of the PSBs.
7. Setting aside Rs. 3 lakh crore towards reforming power distribution sector and also allowing more than one service provider to serve electricity consumers in an area so as to eliminate the current monopolistic structure.
8. Addressing the inverted duty structure under GST for over 400 products.
9. Reducing customs duty on Gold and Silver which will not only make the products cheaper but also reduce the sharp rise in smuggling witnessed in the recent past. Further, SEBI has been notified as the regulator for gold exchanges which is a step towards investor protection.
10. Increasing the FDI limit in Insurance from 49% to 74% will pave the way for value unlocking by domestic investors / higher foreign flows in the insurance companies.
To sum up, the finance minister Nirmala Seetharaman has presented a futuristic budget which will go a long way in making an Atma Nirbhar Bharat. The market believes it lays the foundation of a super cycle bull run.