How Different Sectors Will be Impacted Post the 2022 Budget?

Mr. Jyoti Roy, DVP- Equity Strategist, Angel One Ltd

The government has a responsibility to budget the national economy every fiscal, keeping in mind the specific needs of each sector and focussing on the prospects of growth for the nation as a whole. This year, along with the preceding year, has been crucial because the pandemic swayed the normal course of activities. This deviation has highlighted various causes of concern in the global economy. Talking particularly about the Indian economy, the concerns around infrastructural capabilities are alarming. These can be seen as addressed through the Budget 2022 with a proposed sharp increase in the government’s capital expenditure of 24.5% Y-o-Y. The historical-comparative graph of revenue to total and capital to total expenditures has flipped in the light of shortfalls in planning as accentuated by COVID-19.

Let us look at various sectors and the expected effect that the recently proposed budget might have on them.

Defence Industry

As always, the allocation of funds to this sector has topped the list. The silver lining is the earmarking of CAPEX in the industry to the tune of 68% for the local equipment manufacturers.

Automobile Industry

With enhanced impetus on climate change, the EV sector has focused on the automobile industry. As more players jump into this sector and generate demand for policies to support infrastructural requisites, the government has tried to incentivise the sale of EVs through subsidised costs. In addition, the regulation introduced for battery swapping will help promote clean transport technology.

Logistics Industry

The announcement of 400 new Vande Bharat trains and infrastructural development to connect remote areas for feasible mass transit in the upcoming three years is likely to ease connectivity and promote commerce.

Telecom Industry

The classification of data storage under the umbrella of infrastructure, with plans to auction 5G will strengthen the sales and operations of the currently dwindling telcos.

Energy Industry

The plans to straddle up expenditure in green energy will give a boost to achieving India’s SDG commitments. PLI scheme for solar modules will bring in better and cheaper panels in the Indian domain, escalating domestic use.

Real Estate Industry

Affordable housing has been the incumbent government’s focus for the past five years. The same trend has been continued for the new fiscal, bringing in more contracts for cement and allied industries. The provision for tax holiday u/s 80IBA has been extended to the projects under affordable housing.

Electronics Industry

The ramped-up import duties on electrical and electronic equipment such as PCBs, smart meters and solar modules will prove beneficial for the domestic manufacturers and Make in India prospects.

Chemical Industry

The import duties on raw materials for complex chemical compounds has been decreased to promote domestic research and manufacturing.

Financial Industry

Extension of ECLGS in the background of a strained economy due to the pandemic will help strengthen the economic prospects of MSMEs with dedicated extensions for hospitality and related sectors. This is in addition to revamped CGTMSE to the tune of ₹2 lakh crores.

A major change has been kicked in by the Ministry’s regulation of digital virtual assets through the intent of taxing the profits from such investments at 30%.

The government has also stated plans to introduce its digital token, impacting public sector banks’ minting business and deposits.

Agricultural Industry

The renewed aim of improving health has shifted focus on natural and organic farming, not just for exports but also for greater use in the domestic domain through greater awareness. The promotion of organic farming around Ganga and the introduction of guidelines for drone technology use will certainly benefit the industry.

Conclusion

The industries will overall benefit from the heightened CAPEX outlook in the budget. Given that the disinvestment and tax collection targets are pretty realistic, there is a lesser chance of underachievement. There are no changes in the personal taxation policy rates, owing to a major shift in the tax regime in the previous year. The FMCG sector seems content without change in tax rates for cigarettes. The higher than expected fiscal deficit for FY2023 is negative for the bond markets and may lead to some increase in interest rates though they are it is neutral for equity markets. .. Post the budget the markets focus will shift to the RBI MPC meeting where it is widely expected that the RBI will keep the repo rates unchanged though they might increase the reverse repo rates by 25bps thus narrowing the LAF corridor. Moreover the ongoing Q3 results and results upcoming state elections will also have a bearing on the markets along with the pace at which the US Fed unwinds its monetary stimulus.