Key moments from Nirmala Sitharaman’s budget speech that moved the stock market
- Benchmark index Sensex closed higher by 1.5% or 800 points after the budget 2022-23.
- The increase in overall capital expenditure by 35% from the last year was a big positive for the infrastructure sector.
- Here is how the market reacted to the budget developments and why markets, especially bank stocks slipped significantly after the speech.
“As the supply of money in the economy shrinks, interest rates tend to go up, which is what people are worried about because if the government borrows so much then interest rates will go up,” said Rajamani Venkataraman, managing director and executive director at IIFL Finance in a conversation with Business Insider.
Banking stocks
Rise in bond yields reflect receding confidence in the sovereign’s capacity to repay loans, and at times, a lack of confidence in the financial estimates provided by the government. This often leads to a rise in borrowing cost for the government.
Whatever be the case, traders sold more of India’s government debt in the market than were bought, leading to a spike in yields. Equity markets mirrored the sentiment, and state-owned banks, which hold a lot of government bonds, also fell due to the loss of value of their investments.
Any government is considered to be the safest borrower in any country. A rise in borrowing cost for the sovereign means that the cost of credit may rise for others. Result was a marketwide sell-off, particularly in banks, which eased as more details emerged from the budget.
Indian stock markets on budget day
The Indian stock market has reacted positively five times in the last 10 years.
Infrastructure and cement stocks
The government targets to build 80 lakh houses by 2023 under the PM Awas Yojana with an allocation of ₹48,000 crore for both rural and urban categories. The plan to build more homes means more contracts for cement and construction majors.
Logistics stocks
The government’s plan to develop 100 cargo terminals in the next three years is a big boost for the logistics sector.
Solar company stocks
The Finance Minister’s move to provide additional funds under the production linked incentive (PLI) scheme for solar manufacturers boosted such company stocks.
Jewellery stocks
Shares of jewellery firms rose after the budget proposed a reduction of import duty to 5% from the current rate of 10%.
Metal company stocks
The capital expenditure growth of 35% and along with the extension of customs duty exemption on steel scrap by one year aided momentum in steel stocks.
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