What the stock market expects from Budget 2023

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Budget 2023 would be special — it would be the last full Budget before the nation goes to the polls in 2024. While historically, pre-election Budgets have had populist tones, this was not the case in 2018. It would be fair to assume that the upcoming Budget would be a continuation of recent trends wherein the finance minister Nirmala Sitharaman may maintain a fine balance between fiscal consolidation and reform, and so would focus on revenue generation and continuation of capex expenditure.

For equity investors, the focus would be on three key factors. First is fiscal consolidation. Whether the government keeps its commitment to bringing down the fiscal deficit to 4.5 per cent of gross domestic product (GDP) over the medium term in FY26 would be keenly tracked.

Second, policy reforms to rationalise bottlenecks for growth such as subsidies, a clear roadmap for disinvestment targets and expediting the much-awaited PSU privatisation or consolidation.

Also, the focus would be on SOPs the FM announces to lift rural demand, deepen PLI schemes towards multiple sectors and keep the pace of capital expenditure.


Net-net, sectors influenced by higher government infrastructure spending, indigenisation of defence, rural spending and the PLI beneficiaries could see additional growth measures that could enable faster growth.

Stock market participants would appreciate a general focus towards fiscal consolidation over the medium term. In the short term, however, nil or minimum tinkering with capital gains taxes on equities would be positive from a stock market point of view. Such an approach could keep investor sentiment bullish towards domestic equities.

Views on the MF industry
Mutual fund (MF) investments pay well over a long period of time and the domestic economy has quite a few strong bottom-up drivers that are likely to play out over the next 3-5 years.In fact, it won’t be surprising if this turns out to be India’s decade if the country gets the execution right. In such a scenario, Indian equities as an asset class, and Indian mutual funds as its poster child, would reflect the same sentiment.

Apart from this, a few levers such as the under-penetration of MFs as an investment vehicle for domestic households, increasing propensity to grow discretionary investments as India’s GDP per capita GDP crosses $2,000 and equities as a favourable asset class in an inflationary environment can make Indian MF industry grow in mid-teens over the medium-term.

For domestic mutual funds, tax on long-term capital gains would be in focus.

While it is next to impossible to guess the outcome of this issue in the near term, the equity markets have clearly created a strong feel-good factor for investors over the last few years in absolute terms, as well as in relative terms when compared with equity markets globally.

Hence, the government would be comparing the impact of tinkering with the capital-gains taxes with the actual revenue potential that it may generate from a tax perspective.

Looking beyond Budget
As 2023 progresses, we will face recessionary conditions globally before a rebound in the second half of 2023. Expect the first 3-6 months of 2023 to be volatile as equity markets grapple with central banks’ focus on calibrating interest rates in the context of a slowing demand scenario in 2023.

That said, equity markets look constructive from a three-year perspective. This is driven by our positive stance on the confluence of select themes, including a rebound in credit growth, which was also visible in 2022.

The other themes likely to play out over the medium term include a pick up in private sector investment demand, improvement in household capex demand and Indian companies gaining market share globally. Finally, we are also positive on idiosyncratic country-specific themes like beneficiaries of government growth schemes like PLI etc, and indigenisation of defence.

(Trideep Bhattacharya is the CIO-Equities at AMC)