The Budget 2022 received a mixed response from mutual funds. While equity funds has something to cheer about, debt fund managers felt completely let down by the Budget.
For equity funds, the biggest highlight was higher capex spending target, which managers feel will provide a boost to the whole economy. Debt fund managers see high borrowing targets and the absence of any announcement on global bond index inclusion adversely impacting yields.
Impact on debt funds
The budget was a let-down for the debt market, say fund houses. They list three reasons:
1. Higher borrowing targets
2. Absence of any announcement on global bond index inclusion
3. High fiscal deficit
Which funds do fund managers recommend?
"We expect bond yields to further surge with a bigger impact on the longer-term bond yields. Fixed Income investors should stick to categories like liquid funds or other short-duration fund categories," said Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund.
"Investors looking to allocate to debt strategies are advised to look at fund segments with lower duration profiles and use target maturity strategies to gradually lock in incrementally higher rates over the next 6-12 months," Axis MF said in a note.
"Given this high borrowing programme, normalization of rates by RBI to control inflationary pressure is now in question," said Murthy Nagarajan, Head-Fixed Income, Tata MF.
Impact on equity market
The Budget has a lot for the equity markets to cheer. Mutual fund managers say higher capex spending by the government and no changes in capital gains tax are among the big positives for the market.
They expect domestic focussed cyclical sector like banks, materials & capital goods are expected to do well.
"The budgeted increase of 35% in FY23 in the outlay for capital expenditure, on an already high base of FY22, was the single biggest takeaway from the Union Budget," said Rahul Singh, CIO – Equities, Tata MF.
"A 14% nominal growth in $ 3.2 trillion GDP provides ample headroom for companies to grow. Further with domestic companies in favour for much of the government’s capex outlay, economic multiplier effects should have a significant bearing on sectors like steel, cement, telecom and also trickle down effects into consumption," Axis MF said.
Views on the overall Budget
Debt and equity markets aside, mutual fund executives feel that the Budget is in the right direction to take the Indian economy forward.
"It (the Budget) maintains continuity in policy, stability in taxation and consistency in the strategic direction of the economy. Focus is on infrastructure, logistics, manufacturing, ease of doing business, Make in India, digital ecosystem, etc. without losing sight of social objectives and Covid impacted sectors. The revenue assumptions are conservative and fiscal targets are therefore likely to be met," said Prashant Jain, Executive Director & Chief Investment Officer, HDFC AMC.
"Focus on larger issues like infrastructure, logistics, connectivity, roads, PLI promoted manufacturing needs to be seen with focus on increased spending on aatmanirbhar defence manufacturing, increased farm procurement, tap water access and affordable housing. This shows that the government is looking induce capital expenditure towards the goal of a $5 trillion economy," said Swarup Mohanty, Director & CEO, Mirae Asset MF.
NS Venkatesh, Chief Executive, AMFI said, “Unprecedented thrust on capital expenditure with an aim to enhance job creation, extension of Emergency Credit Line Guarantee Scheme (ECLGS) by another year and guarantee cover proposed to be expanded 10 times to Rs. 5 lakh crore for small businesses, proposed cap on the surcharge on long term capital gains arising on transfer of any type of assets at 15% and overall PM Gati-Shakti initiatives are expected to trigger equity markets over a longer term. Equity mutual fund investors will benefit through the slew of measures which will have deep-rooted impact in the times to come.
