Equity Market Outlook

29th January 2021


Deal activity moderated in January with 8 deals of ~USD1.5Bn (vs 14 deals of Union Budget 2021 was one of the best budgets in the recent years, the Govt has gone for Higher Capital Expenditure and an Expansionary Budget
Some of the Key Highlights are
● Higher capital expenditure: While total expenditure growth is flat in FY22E but capital expenditure to grow at 26% in FY22BE over FY21RE.
● Expansionary budget with a focus on growth; Emphasizing the importance of Aatmanirbhar Bharat in order to boost manufacturing in India which in turn would provide the necessary boost for job creation.
● Infrastructure development: The emphasis on infrastructure development in the budget is impressive with focus in allocation to roads and railways; Creation of a Development Financial institution (DFI) which will provide long term capital for the National Infrastructure Pipeline (NIP) projects.
● Proposal to set up an Asset Reconstruction Company: In order to solve the bad loan problems of the Public sector banks and strengthen the balance sheets, the government further proposes to set up an ARC (Asset Reconstruction Company) for aggregating / pooling bad loans of state banks.
● Fiscal consolidation slower than expected: Endeavour to bring down fiscal deficit to below 4.5% of GDP by FY26E.
● Need to execute well: The success in the schemes announced will depend a lot on the ability of the government to execute.
Privatization: Strategic disinvestment: The government has outlined the policy of strategic disinvestment of public sector enterprises. The policy provides a clear roadmap for disinvestment in all non- strategic and strategic sectors. The government has identified four areas that are strategic where bare minimum CPSEs (central public sector entities) will be maintained and rest privatized.
● Disinvestment target set at INR1750Bn for FY22BE; Privatization of 2 state owned banks and LIC (Life Insurance Corporation) disinvestment to be key.
Earnings: In 3QF21, the markets were expecting a pretty good set of nos from Corporate India since the Demand in the festive season has been very good for almost all the sectors. The shift in market share from UNorganised to Organised has continued in this quarter as well given that the Supply Chain of the Unorganised is still broken and in some cases even if the Supply chain is fixed, the Distributors have stuck with the Organised guys.
● This has turned out to be the best earnings season in a decade so far with the extent of beat, broad-based sectoral participation in earnings, consequent upgrades and upgrade/ downgrade ratio. Barring NBFCs, all other sectors have beaten earnings expectations. Some Big numbers which are yet to come and can impact aggregates.
Vaccination Drive: India kick-started its vaccination drive in mid-January and inoculated over ~2.8mn people out of the ~300mn people belonging to high-risk groups including frontline workers, elderly and those with co-morbidities.