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A case for equities

Budget 2016 has shown a willingness to spend on infrastructure, roads and railways, and in rural infrastructure

By Nimesh Shah

If there’s one word that surmises the impact of Budget 2016, it would be constructive. While adhering to the fiscal deficit target of 3.5 per cent for FY17, the Budget has allocated a good chunk of resources for infrastructure revival by achievable targets. On the other hand, the Budget has also estimated that the current account deficit is estimated at 1.4 per cent. These figures show that the country’s external and internal accounts are quite healthy. In many ways, this could lead to lower interest rates in the economy in 2016.

Budget 2016 has shown a willingness to spend on infrastructure, roads and railways, and in particular, rural infrastructure. Total allocations to infrastructure including road, railways are around Rs.2.21 trillion which is a good start. Rural electrification and roads account for Rs.275 billion. Besides, the Budget has also allocated Rs.2.18 trillion for roads and railways.

At the same time, the government has taken big strides in tackling the credit sector by capitalising banks with Rs.250 billion allocated for this purpose. Credit demand will increase as the economic growth picks up and, this will have to be backed by a robust banking sector. Budget 2016 has also announced measures to strengthen banking by consolidating banks into a few large ones.

The Budget continues on the fiscal consolidation path. Hence, investors should continue to slowly shift their allocations into equities over the course of the year and be overweight in equity by the end of 2016. Valuations have not only turned attractive, but because the Budget has dug the foundations of a sustained and steady recovery.

In the end, it is a constructive Budget that focuses on the rural economy, higher taxes for the rich, boosting income and employment at lower levels, and igniting growth with a focus on rural investments.

 

olmdesk@outlookindia.com    

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