Mutual fund managers decode interim budget for investors

Mutual fund managers were not expecting any major announcements in the interim budget 2023. However, most of them were waiting for certain numbers in the budget which they believed will have a major impact on the markets – both the stock and debt markets. Here are some mutual fund managers helping investors to make sense of the budget.

Vetri Subramaniam, CIO, UTI AMC

“This is a judicious interim budget. The degree of fiscal consolidation with a target of 5.1% in FY25 is more than anticipated and is positive for the softening of bond yields. Further the reiteration of the fiscal target for FY26 gives the bond market medium-term visibility. The consolidation impacts expenditure including capex by the government.The tax estimates appear reasonable and the stability in tax provisions is welcome. The government has done the heavy lifting during the post-pandemic period and is now passing the baton to the other players in the economy. As regards FY25 we would expect more policy direction to emerge when the full budget is presented later this year.”
Ashish Gupta, CIO, Axis Mutual Fund

“While we did not expect any major announcements in this budget, the lower fiscal deficit coupled with higher capex outlay will aid continued momentum of India growth story. Both of these moves are enablers for a pickup in the private capex cycle.”
Shreyash Devalkar, Head Equity, Axis Mutual Fund

“It’s more an affirmation of the intent of the government, the capex outlay has been increased which is a positive. The government’s focus on infrastructure and housing will create a multiplier effect on the economy, maintaining a fiscally prudent budget.”
Abhishek Bisen, Head- Fixed Income, Kotak Mahindra AMC
Given this is an election year, the government prioritizing fiscal responsibility in its interim budget is commendable. The biggest win for the debt market:- Fiscal deficit of 5.1 % of GDP for FY 24-25 was much lower than everyone expected on the street. This effectively translated into Gross Market Borrowing of Rs 14.13 lakh crores and net borrowing of Rs 11.75 lakh crores. FY25 Market Borrowing looks manageable, thanks to reduced gross borrowing numbers and added comfort from potential foreign flows with inclusion in J P Morgan Emerging Market Bond Index. Importantly, the government maintained its focus on long-term growth by allocating a record high of more than Rs 11 lakh crore towards capital expenditure. This can be seen as a disinflationary budget.

Puneet Pal, Head – Fixed Income, PGIM India Mutual Fund
“A pleasant surprise on the fiscal deficit pegged at 5.1% against expectations of 5.3%. This will lead to lower yields as the borrowing numbers are also lower than market expectations.”

Manish Gunwani, Head – Equity, Bandhan AMC

“It is a fiscally prudent budget with conservative assumptions on tax revenues, nominal GDP etc. A big positive is the potential for interest rates to go down given the higher-than-expected drop in fiscal deficit. Overall we believe it enhances the macro stability of the economy.”

Suyash Choudhary, Head – Fixed Income, Bandhan AMC

“The interim budget today took another big step forward in the remarkable journey of macro-economic stability that has been underway for some time now. While it was important to appreciate the context of the higher central government deficit of the past few years, it was nevertheless considered as probably the weakest aspect of India’s overall macroeconomic story. With the 80 bps fiscal consolidation on budgeted fiscal deficit between FY 24 to FY 25, and the finance minister’s stated commitment to attain less than 4.5% deficit in FY 25 (implying at least another consolidation of 60 bps), India has now solidly ringfenced this aspect of our macroeconomic story as well.”

Murthy Nagarajan, Head-Fixed Income, Tata Asset Management

The Fiscal deficit of 5.1 and total gross borrowing is Rs 14.13 Lakh crores, the total net borrowing is at Rs 11.75 Lakh crores. The Nominal Growth is expected to be 10.5% and tax revenue growth is expected to grow by 11.93%, which is a conservative estimate. The total non-tax revenue has been budgeted at Rs 1.53 Lakh Crores same as last year. The numbers look realistic as the assumptions are realistic. The capital expenditure is targeted at Rs 11.11 lower than market expectation of Rs 12 Lakhs. The Finance minister stated they want to get fiscal deficit below 4.5 % in 2025-26. This is an anti-inflationary budget in an election year as the fiscal deficit is reduced from 5.8 percent to 5.1 percent.. The finance ministry is clearly aiming for rating upgrade with aggressive fiscal deficit reduction target as we are at investment grade rating. The ten-year yield has come down to 7.05 to 7.08 levels from 7.15 levels. Further drop in yields is expected due to flows from foreign institutional investors and expectation of India’s rating upgrade.

Chirag Mehta, CIO, Quantum AMC

“There was an expectation that given it’s an election year, the budget could tilt more populist with more support for the rural sector. However, contrary to expectations, the government continues to be driven by development and fiscal prudence as the central focus. Given the economic growth momentum , there was a need for assuring macroeconomic stability which has been judiciously crafted to give way for fiscal consolidation. The lower tax collection assumption could either be conservative or a government signal to assume some growth moderation going forward. The government continues its capital expenditure on Inclusive development with Agri, Infra (including housing) and Green ecosystem as the key thrust areas with an emphasis on Research and Technological developments. There was a need to support manufacturing momentum and a way to revive the rural economy. However, probably that could be part of the main budget that gets presented in July as government plans to showcase a pathway for Developed India.”

Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund

“This is a very good budget for the bond market as the government chose fiscal prudence over populist spending. The budgeted fiscal deficit of 5.1% of GDP is lower than even the lowest of market estimates. Faster fiscal consolidation and consequent decline in the government’s market borrowing should drive bond yields lower and bond prices higher. Another positive aspect is that the government has pegged only a moderate growth in the non-capex expenditure. This should keep inflation under check and provide enough headroom to the RBI to cut interest rates. We expect long term bonds to do well in 2024. Investors can capture this opportunity with dynamic bond funds which are invested in long term bonds.”

A. Balasubramanian, Managing Director & CEO, Aditya Birla Sun Life AMC Ltd

“The interim budget speech delivered by the finance minister of India clearly focusses on fiscal consolidation, infrastructure spending, consumption and capital expenditure. The government continues the path of fiscal consolidation with the fiscal deficit estimated to be 5.1% of GDP for the financial year 2025. Providing an interest free loan towards technology spending by the youth of our country is a positive for the growth momentum. Also, consumption would likely boost by focusing on the Agri economy. Lastly, the capital expenditure by the government continues to drive the whole eco system for the overall growth momentum of the country.”