Budget 2023-24: This budget is going to take sensex to 2 lakh – this budget is going to take sensex to 2 lakh
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New Delhi: In the budget presented by Finance Minister Nirmala Sitharaman, there is talk of bringing inflation in the range of 4-5 percent with real GDP growth of 6-7 percent. At the same time, keeping the fiscal deficit at 6 to 6.5 per cent of GDP, huge expenditure has been proposed from the exchequer to increase growth. This is a strong budget in my view. There is a lot of improvement in the quality of government expenditure. There is talk of keeping the total revenue expenditure in the budget at Rs 35 lakh crore. On the other hand, there is a jump of 30 per cent in capital expenditure.
There is another reason to call this budget strong. The least changes have been made in all the types of taxes, direct and indirect, and the tax rates. This was the last full budget of this government before the 2024 Lok Sabha elections. Still, the good thing is that the Finance Minister avoided populist measures.
Most experts with an understanding of the macro economy would say that this budget has made a calculated bet on the capex cycle. That is, to motivate the private sector for capital expenditure from government capital expenditure, so that more employment opportunities are created and this increases the income of the people and they spend more. This will increase the tax revenue of the government and on its own, the government will do more capital expenditure. In this way this cycle will continue.
The question is, what does this mean for the stock market? Two years ago, around the budget 2021, the Sensex was at the level of 50 thousand. Then I had said that in 10 years the Sensex can go up to 2 lakhs. This figure may sound huge, but the math is clear. On the basis of nominal GDP growth of 11-12 percent, the sales of the corporate sector should increase at the rate of about 15 percent. If the profit margin is good then the profit of the companies should also increase by 15 percent. Since the stock market evaluates companies on the basis of profits, if their profits increase by 15 percent, then the market returns should also be 15 percent. Thus, taking into account the compound annual growth rate (CAGR) of 15 percent in 10 years, the matter reaches four times. So the Sensex at 50,000 should quadruple to reach the level of 2 lakhs in 10 years.
This time the budget has maintained this picture. Now the question comes, what should investors do keeping this budget in mind? My bet is on banking, especially private banks. Good economic growth is a double positive for this sector. That is, the demand for loans will increase and the credit cost will also come down. This will increase the profit of the banks. In this budget, 66 percent more allocation has been made for PM Awas Yojana ie Affordable Housing. This is a good thing for the cement sector. Although the production capacity in the cement sector is sufficient, the impact of increase in demand may not be visible. The government has talked about increasing capital expenditure. This will certainly have a positive impact on the capital goods sector. However, profitability may remain low as supply side inflation will take its toll. In this way, leaving the private banking sector, one should focus on selected stocks in terms of investment, instead of betting on an entire sector. All in all, India has had an illustrious past and its future will be illustrious.
(The writer is chairman, Motilal Oswal)
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