‘Markets prize macro stability and fiscal consolidation ahead of budget’

livemint.com:

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: 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. 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. 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.