Views : Union Budget 2023-24 : Quantum AMC

Equity View : George Thomas, Fund Manager- Equity, Quantum AMC

Government has chosen higher capital expenditure as the main catalyst to stimulate the economy, than any major consumption boost. Budgeted Capex has a robust growth of ~37% over the revised estimates of current year. Despite being the last full year budget prior to election, absence of major populist measures is positive. Budget lacked any major direct measures to stimulate consumption and rural economy. Absence of any changes in capital gains tax rate is a relief. Overall, the fiscal consolidation pathway and robust infra spends would support the broader economic growth in the medium term.

Debt View : Pankaj Pathak, Fund Manager- Fixed Income , Quantum AMC

The government has done a fine balancing act of boosting capital expenditure while consolidating the fiscal deficit. The quality of government expenditure has improved consistently in the last three years with capex to total expenditure rising from 12% in FY21 to 22% in FY24. This should enhance future growth potential of the economy and should lead to higher revenues for the government over medium to long term.

From bond market’s perspective, reduction of fiscal deficit to 5.9% of GDP and lower than expected market borrowing of Rs. 15.4 trillion were somewhat positive. Government reiterated its commitment to further consolidate its fiscal deficit to below 4.5% of GDP by FY 2025-26. This should help investor sentiment in the bond market. We expect the government bond yields to remain around current levels or decline marginally over the coming months.

Gold  View : Ghazal Jain, Fund Manager- Alternative Investments , Quantum AMC

Domestic gold prices were trading at a discount of close to 2% for most of January. This was partly due to market anticipation of a reduction in custom duty on gold in Budget 2023-24. But Finance Minister Nirmala Sitharaman maintained the status quo with duty standing at 15% + GST. As a relief reaction, prices moved up by about 1% as the discount evaporated. But while the short-term price distortions prevailing in the market may have been taken care of, the longer-term structural issue remains unaddressed. This has to do with the higher government intervention through higher custom duty which results in large price differentials between international and domestic gold prices. This hinders efficient functioning of the gold markets in India by encouraging illicit gold imports which in turn lead to price distortions. Price distortions ensure India remains a price taker on the international front and make it difficult to channelize the hoard of India’s gold savings into circulation and thereby integrate the gold market with other financial markets. While rationalization of custom duty did not make it to the Government’s agenda this year amid concerns around the current account deficit and weaker rupee, we hope it does the needful sooner rather than later.

In the precious metals space, custom duty on silver was increased from about 10.75% to 15% to bring it at par with duty on gold. Despite that domestic silver prices saw an up move of only 1.5-2% reflecting lower domestic demand for the metal.

The government also gave a thrust to the lab-grown diamonds industry by reducing the basic customs duty on seeds used in their manufacturing. If lab-grown diamonds become more mainstream in the time to come, it could be positive for gold demand as demand for natural diamonds and thus their prices and appeal as an investment asset declines.