An Equity Perspective: Union Budget FY23 – Seesaw of Risk & Opportunity.

31 Jan 2022

Union Budget 2022-23 is scheduled to be presented on 1st Feb 2022. Citi economists expect Infrastructure push to remain as the key theme. They do not expect major tax related changes and keep the Dec’22 Nifty Target as 17.5K.

Key Highlights:

• 1. Short Term Market Impact: Citi economist expect a few potential announcements to positively impact the market in the short term namely a) Clarity of timelines with respect to Asset Monetization/Divestment; b) Tax changes likely to pave the way to global bond inclusion. Looking ahead they suggest being watchful of State election, RBI’s stance and Global Cues (USD, US Fed Commentary).
• 2. Markets and Valuations: Markets are factoring in a strong earnings momentum and elevated absolute and relative valuations. NIFTY’s current EPS growth forecast is 40% and 18% in FY22 and 23E – with a downside risk accounting for inflation pressures and recent GDP growth downgrades. Despite the recent ~5% correction - NIFTY continues to trade at a substantial premium to EM and is at >20x 1yr fwd P/E.
Source: Bloomberg, Citi Research


• 3. Capex in the Centre: Citi economists expect the government to likely to target a modest fiscal consolidation in FY23E (40-80bps YoY) – translating to~4% expenditure growth. Indicating a shift in quality of expenditure, growth supportive measures may receive a higher allocation. They also believe that there could be a higher allocation to infrastructure (public capex growth at ~17% YoY) and lower subsidy & covid-relief related expenditures.
Source: Citi Research,MoF. *Actual based on monthly data . **Citi estimate


• 4. Sectoral Expectation: Citi economist share the following sectoral expectation:
  a)Rural demand support measures + EV-incentives could benefit 2W OEMs, tractor-makers & consumer cos; b)Extension of tax benefits for affordable housing projects could benefit HFCs, Real Estate & Cement Cos; c) Higher allocation to Ayushman Bharat scheme could benefit private hospitals among healthcare.; d)New announcements around PLI scheme, budgetary focus on infrastructure should benefit Industrials; e)Disinvestment timeline for BPCL (Energy), sectoral reforms in telecom (lower license fees and SUC charges) would improve telecom sector profitability further. f) Utilities – focus on announcements around Electricity Act changes and DISCOM support

For more updates please visit Citi Wealth Insights