In The Interim

The interim budget was hardly an event. There was hardly much given away as freebies, concessions or incentives to voters on election eve.

On the policy and taxation front, the budget assured continuity. Beyond giving the assurance of continuing to work for the poor, farmers, women and youth, the budget made no extra effort to go out of the way and lure any constituency of voters.

On the macro front, the budget promises a lot more than was expected. It promises higher fiscal discipline and a planned return to the fiscal responsibility and budget management framework that was in place prior to COVID. The markets definitely liked this aspect the most and the subsequent market rally was a reflection of its confidence in the macroeconomic stability of our economy. Banks, especially public sector banks, were the biggest beneficiaries of rising sentiment in the PSU basket. Oil stocks also made a comeback as the markets believe fuel prices will continue to be market driven.

But, the markets are seeing enormous froth in several PSU stocks. Valuations of many stocks are very close to being called a bubble and it remains to be seen how the government addresses the emerging situation. Mistaking the froth for fundamentals would be a huge mistake and hopefully the government takes a clear stance at the earliest to protect retail investors suitably from getting trapped in PSU stocks.

The budget has made the situation quite alarming in many PSU stocks. Timely corrective action is the need of the hour.

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