The Union Budget 2023 will be an event for the market only if there are changes in the tax rates or tenures of Long Term Capital Gains (LTCG) or Short Term Capital Gains (STCG) across asset classes, Research & Ranking’s Chief Investment Officer Jaspreet Singh Arora has said.

Indian markets have been volatile and analysts expect the volatility to continue as participants wait for the Budget 2023-24, the last full budget of the Modi government ahead of the 2024 national elections.


Since it is an election year, the government may announce benefits and policies aimed at the rural sector to boost languishing demand, says Arora. Certain measures could also be aimed at uplifting rural infrastructure, which indirectly boosts employment and relieves distress.

In an interview to Moneycontrol, Arora, who has over 18 years of experience in the capital markets, says there is a high probability of the Nifty delivering low to mid-double-digit returns in 2023. Edited excerpts:

Will the government meet its fiscal deficit target of 6.4 percent of the GDP for FY23? What could be the target for FY24?

The fiscal deficit currently stands at 60 percent of BE (budget estimates April-November 2022) with buoyant tax revenues. Tax revenues for April-November 2022 grew at 7 percent YoY (63 percent of BE) and are on track to meet FY23 budgeted estimates. We expect capex to pick up (currently at 60 percent of BE), supported by a rise in tax revenues for the remainder of the year. Thus, the fiscal deficit should be maintained around 6.4 percent with a low possibility of a minor slippage.

Going forward, FY24 fiscal deficit could be pegged at 5.8-6 percent. One of the biggest helping hands for the government would be the renewed strength of the PSU banks, which together would be a strong force in pushing corporate credit and help push the economy, thus reducing the strain on the government’s finances.

Do you expect the Federal Reserve to hike rates by another 50 bps during January 31-February 1 policy meeting?


The Federal Reserve is likely to hike the Fed funds rate by 50bps, possibly in two tranches of 25bps each in the next two meetings. The incoming US inflation data over the past three months i.e. October, November and December 2022 has been encouraging, with October and November 2022 data coming in better than expectations and December 2022 data coming in line with expectations.

While the inflation trajectory is moving down, it is still away from the 2 percent targeted inflation rate. While we are close to the peak rate, it may be a while before the Fed starts reducing the rates again.

The key expectation from the Budget 2023 is likely the continuity in the government capex. Which are the two sectors that gain the most?

Roads, rail and defence are the sectors which are likely to be beneficiaries of the government's incremental capex. The roads sector has been the mainstay for the past few years now, being a prominent part of the earlier Bharatmala project and now the NIP.

While indigenisation in defence had been the talk for some time, we actually saw a pickup only in the last year with the government coming out with four lists, promoting indigenisation in close to 400 products. Given the geopolitical tension flare-up, the defence sector will continue to capture the government’s focus.

Do you think the Union Budget 2023 will be a non-event for the market? Do you think the market will remain range-bound for the first half of 2023?

The Budget 2023-24 will be an event for the market only if there is any tinkering with the tax rates or tenures with respect to LTCG (long term capital gains) or STCG (short term capital gains) across asset classes. Given the volatility seen in 2022 and the lessons learnt, trying to guess the market direction in the near term may be a futile exercise.

What is more important is to understand that in FY24, India is expected to grow at 7 percent real and 15 percent nominal GDP, the Nifty will see 18-20 percent EPS and select pockets at 25-35 percent. We believe that in the current environment, there is a high probability of Nifty delivering low to mid double-digit returns in 2023.

Will the Union Budget focus on rural schemes in view of the general elections in 2024 and rural distress?

Since it will be an election year, the government may announce some benefits and policies aimed at the rural sector to boost languishing demand, while certain measures could be aimed at uplifting rural infrastructure, which indirectly boosts employment and relieves distress.

Do you think this is a good time to pick technology stocks? Do you see a major impact of a recession on tech companies?

IT results, so far, have been a mixed bag, indicating that there is no common thread between companies. However, what is equally certain is that the current demand environment is uncertain due to budget cuts and decision delays at the clients' end.

We believe that while the sector valuation may have corrected from the peak seen in early 2022, it still remains elevated compared to long-term averages.

Select stocks should do well in 2023, while the sector at large may merit investment probably after Q4 results/commentary by when the conundrum around a recession and peaking of interest rates should clear materially.

What is noteworthy about the IT sector is that a vast majority of the companies are backed by quality promoters and leadership, balance sheets are healthy with strong cash flows and return ratios still far better than most other sectors.

In this context, the debate around FY24 earnings growth being in high single-digit or low double-digit growth and how bad it gets before it picks up would be a discussion point amongst active fund managers with a focus on alpha every quarter but largely ignored by investors who are taking a two or three years’ view on the IT sector.

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