The markets rose by 1% last week, amid the same drama between inflation and interest rates. Inflation data showed a cooling down in both the US and India.
In the US, consumer prices had their largest MoM decrease since April 2020. Retail inflation in India eased to 5.7% in December, versus 5.9% in November, and 6.8% in October, staying in RBI’s comfort zone of 2-6% for the second consecutive month.
This brought some cheer to stocks, after a month of gloom. But a bigger potential mover is coming our way in a couple of weeks - THE BUDGET! The focus will finally move away from monetary policy, onto the fiscal policy.
What's expected of the budget this time around then?
The upcoming budget is a crucial one for two reasons. First, the budget needs elements that continue to keep India at the top of the global growth chart. And second, the government needs to please people as this is the last full-year budget before General Elections in 2024.
There’s one factor that can ensure the satisfactory achievement of both these objectives - CAPEX! Here’s why:
As a policy decision, the infrastructure push has worked from a growth and public validation standpoint
Tangible progress on infrastructure is a key focus for any government in the last two years of an election cycle
With monetary policy being regressive, and successful at stemming inflation, India needs fiscal support to continue standing out on the global growth stage
With inflation showing signs of having peaked, subsidy bills are likely to come down next year, providing some fiscal room, and
Intended global supply chain reorganisation offers a strategic opportunity for policy to capitalise on
If we take a calculated bet on aggressive CAPEX in this budget, there are several opportunities that emerge in the markets. Some of them include:
Infrastructure push - Cement, construction, defence, engineering, infrastructure, and rail
PLI focus - Auto components, chemicals, electrical goods, and industrial components
Mid and small stocks - Manufacturing companies embarking on aggressive CAPEX to cater to domestic and export demand
By, the way, we wrote a feature presenting our views on the budget and its impact on the markets for Business Today!