Union Budget 2023: Will there be no surprises for investors?

The most talked about thing of the upcoming budget is that it is the last full-year budget before the 2024 general election. Thus, a host of populist schemes could be announced. But considering the government’s past track record and current limitations (in the form of a high Gross Fiscal Deficit/Gross Domestic Production and committed expenditure) it is unlikely the center would go overboard.

However as evidenced by the latest few quarterly results although the demand for premium products has been strong, the low and mid-segment products are witnessing poor growth. This is a classic example of a K-Shaped recovery where the economically lower segment has not been able to make a significant comeback. This would push the government to increase allocation to the rural economy and ensure it is well-oiled. Beaten down sectors like FMCG, Two-Wheelers companies & Staples would be benefitted.

The Government is expected to continue its momentum of capital expenditure. It had budgeted a high Capex of INR 7.5 Lakh crore in FY23 and it is likely to see a double-digit rise in FY24. The private Capex has been muted and thus a strong public sector Capex becomes important. Defense, railways, and roads could continue to witness significant allocation. Capital goods and Cement sectors would continue to remain in the spotlight.

Make-in-India would be another theme that could be at the center stage. We could see custom duty cuts in commodities where indigenization and value add are gaining pace. Further, a tax hike on imported finished goods could be on cards to aid local manufacturers. Chemical companies and electronic manufacturers are key beneficiaries.

There are talks of a possible change in the capital gains tax structure in order to bring uniformity across asset classes. This has spooked the equity investors on a possibility of an upward revision. The Government would certainly look for a new revenue stream to boost its tax-to-GDP ratio but any upward change in LTCG Tax is unlikely. As it could have a significant impact on the Indian equity market which is already fighting against the FII outflow.

In the 2019 Budget, Finance minister Nirmala Sitharaman fulfilled her late predecessor Arun Jaitley’s promise to cut the corporate tax rates. And, also assured relief for individual taxpayers. This appears to be the right time to revise 80C limits or rejig tax slabs as consumers are facing pricing pressure. Also considering the upcoming general elections the timing seems just right to implement this. The Market would expect the budget to be a fine balancing act between macro stability and growth. Any Bias towards one could result in an eventful day for the stock markets.

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Technical Outlook:

NIFTY50 on the daily chart has found resistance near the upper band of the Triangle pattern and prices witnessed some profit booking after showing a fine up move from 17,880 to 18,183 levels. The broader range has been the same but buying has emerged on the daily chart where the index has shown optimism to sustain above 18,000 levels.
The indicators and oscillators are turned flat without indicating any short-term directional move. The momentum oscillator RSI (14) attempted to move above 50 levels but the attempt failed as the index was not able to close above its previous day’s high.
Nifty on the weekly chart is placed between a broader high-low range of 18,200 -17,800 levels from the past 4 weeks. Furthermore, the price is also trapped between the 9 & 21 EMA bands which suggest a break on either side will decide further directional move in the index.

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