Analyzing Budget 2024: Nomura’s Perspective on Economic and Political Priorities

With the Union Budget 2024 looming, economists and analysts are closely eyeing the economic vision and political landscape that will shape India’s fiscal trajectory in the coming year. Nomura, a prominent Japanese brokerage, highlights several key aspects to monitor as the new government prepares to outline its financial strategy.

Aurodeep Nandi, India economist at Nomura, emphasizes that reducing the fiscal deficit remains a critical objective for the government, aiming to bring it down to 4.6% by FY26. He underscores the importance of understanding the fiscal glide path, a pivotal indicator of fiscal responsibility and economic stewardship.

Beyond fiscal targets, Nandi points out the significance of the new government’s economic agenda. He highlights the 100-day plans devised by ministries pre-election, which offer insights into policy priorities and immediate actions expected from the incoming administration.

Political dynamics also play a crucial role, especially in coalition-based governance. Nandi discusses the potential impact of coalition demands, particularly from allies like Janata Dal and TDP, based in Bihar and Andhra Pradesh respectively. These demands could influence budget allocations, potentially leading to increased borrowing and targeted spending on social sectors and local infrastructure.

Addressing concerns over fiscal sustainability, Nandi references Finance Minister Nirmala Sitharaman’s assurance on managing social sector spending within prudent limits. He notes the government’s achievement in surpassing fiscal deficit targets for FY24 and the substantial dividend from the RBI, providing fiscal maneuverability.

Looking ahead, Nandi suggests the possibility of a marginal reduction in the fiscal deficit to 5% from the interim target of 5.1%, underscoring the government’s commitment to fiscal discipline amidst economic uncertainties.

Switching gears to market sentiments, Saion Mukherjee, Nomura’s head of equity research, highlights current market dynamics driven by domestic investor sentiment. He notes that despite valuation concerns, the market rally remains robust, fueled by domestic liquidity while foreign investors adopt a cautious stance.

Mukherjee anticipates increased IPO activity in the latter half of the year, which could alleviate valuation pressures by expanding investment options. He suggests that this diversification could restore market balance, diverting capital towards emerging themes like artificial intelligence and aligning with global market trends.

As India braces for Budget 2024, Nomura’s insights provide a comprehensive outlook on economic expectations, political influences, and market dynamics, offering stakeholders a nuanced perspective on navigating the evolving fiscal landscape.