Interim Budget 2024: Markets prize macro stability and fiscal consolidation

Ashish Gupta, CIO, Axis Mutual Fund
Ashish Gupta, CIO, Axis Mutual Fund


  • Investors confident that macro stability will continue
  • Markets may react negatively if govt does not stick to fiscal glide path

The strong move up in the markets after the state elections reflects investor confidence in India’s macroeconomic stability, said Ashish Gupta, chief investment officer at Axis Mutual Fund. In a recent conversation with Mint’s Ravi Krishnan, Gupta, who manages assets worth 2.27 trillion, emphasised that the biggest thing to monitor in the upcoming interim budget is the government's commitment to its fiscal consolidation plans.

Edited excerpts:

What concerns the market more: political instability or competitive populism?

I think after the results of the state election, both concerns seem significantly mitigated. 

Going into the polls, there was apprehension that competitive populism might emerge, but this government has largely avoided this in recent years. 

The market's strong reaction post-elections reflects confidence not only in political and policy continuity but also in the avoidance of populism. And, I think, this bolsters the market's confidence in the country's ongoing macro stability.

But with are seven states polls and the general elections approaching, how do you see this impacting the government's approach?

Despite these upcoming elections, the market increasingly believes the central government will not only stay away from populism but maintain its path of fiscal consolidation laid out for two years. 

Any deviation in the budget might trigger a negative reaction, but maintaining this path should reinforce market confidence.

Given the market's rich valuations, do you anticipate a focus on divestment, and more importantly, privatization?

Yes, the government can now more aggressively pursue divestment, especially with the market's uptrend. If you look at the CPSE-ETF, I think last year it was up 75%.

Privatization, being a longer and more intensive process, might not see as much focus. Some enterprises, including banks, were put on the block but it has been difficult to conclude and consummate those. 

The recent surge in market valuation provides room for the government to engage in offer for sale (OFS) in various companies, similar to private equity players and private company promoters who have capitalized on the market rally to reduce stakes.

The first advance estimates showed private consumption expenditure will grow at only 4.4% this financial year, and the rural economy also does not look that great. Does that concern you?

It is indeed perplexing that despite broader economic growth over the last two years, consumption revival has been slow. This is reflected in the underperformance of consumption-oriented companies, with most of the activity in the industrial manufacturing space.

In low-income, or mass-market consumption, even the latest quarter estimates and guidance of the FMCG companies are fairly muted.

However, with positive developments in low-income job creation, real estate, and construction, and with inflation subsiding, I see no overarching reason for the continuation of this consumption slowdown. 

But are we seeing any signs of consumption pick-up today? The answer is no.

Again, from a macroeconomic perspective, all the ingredients are in place for a consumption revival to come through. The real question is the timing of this revival.

If there is one budget measure you would like to see announced, one reform measure, what would that be?

More than specific reforms, my focus will be on the government's commitment to fiscal consolidation. The macro stability achieved through fiscal consolidation and a resilient external account has been pivotal for India. Maintaining this macro stability environment is crucial, as other aspects tend to align subsequently.


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