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PSU divestment, LIC IPO, fiscal deficit: How
brokerages read Budget 2021
Budget 2021 marks a clear change in the Modi government's stance from fiscal conservatism to growth
orientation, notes analysts at Jefferies
Markets have been on fire after Finance Minister Nirmala Sitharaman presented Budget proposals for fiscal 2021-
22 (FY22) with the S&P BSE Sensex surging over 3,300 points in just two sessions. Most brokerages have given a
thumbs-up to the proposals, calling them ‘pro-growth’ that will entail a Capex-driven revival of Covid-19 impacted
Indian economy, even though fiscal deficit and the borrowing program of the government for the next financial year
came in a tad higher-than-expectation.
Divestment of select public sector banks (PSBs) and one general insurance company, initial public offer (IPO) of
Life Insurance Corporation (LIC), Air India, tax rationalization of dividends of foreign portfolio investors (FPIs), and
bringing them at par with treaty rates coupled with no new taxes for investment in capital markets are some of the
proposals that have propped up markets.
Here’s how leading brokerages have interpreted FM Sitharaman’s ‘never before’ Budget 2021.
The government’s decision to accelerate spending, a volte-face from its earlier strategy, reflects its view of higher
multiplier effects during the unlock phase and higher growth as a pre-condition for debt sustainability. Revised
targets suggest government spending will be frontloaded and rise by 55-60 percent y-o-y in the final quarter of
FY21 (January - March 2021). At the margin, we believe rating agencies may view the budget as slightly more
negative, given their focus on medium-term fiscal finances. Of the two rating agencies with a negative outlook for
India, we believe the budget may have increased the probability of a downgrade from Fitch.
The budget marks a clear change in the government’s stance from fiscal conservatism to growth orientation. The
fiscal deficit for FY22 is pegged at