K-shaped response to the budget

by Mahesh Vyas

Presentation of the Indian Union budget is an event of much hype and hoopla. Markets and households seem to repose inexplicable expectations on the government delivering a path-breaking budget. Financial market investors bet on the budget’s impact on their wealth and households hold their breath in expectation of tax reliefs.

Important people rate the budget often through an exuberant media. But, there are better ways to judge the popularity of budget announcements. Independent of what they say on TV, investors rate the budget far more honestly when they vote with their money. Investors were evidently happy with the budget. The value of BSE-30 companies rose five per cent and that of Nifty-50 companies rose 4.7 per cent on the day of the budget. It is unusual for the value of these companies to rise by more than 2 per cent on an average day. The relatively smaller NiftyNext-50 companies rose nearly 3 per cent and the much broader BSE 500 shot up by 4.2 per cent on the day. Optimism was widespread, the very broad 2,700-companies based CMIE’s Overall Share Price Index rose by 3.4 per cent on the day of the budget.

This was not just a flash-in-the-pan kind of excitement. A week after the budget all the equity indices based on these companies were doing very well. BSE-30 was up by 9.6 per cent, Nifty-50 was up by 9.5 per cent, NiftyNext-50 was up by 6.5 per cent, BSE-500 was up by 8.6 per cent and COSPI was up by 7.6 per cent.

The finance minister did very well for equity market investors. How did she fare with households? One way of finding this out is to check the Index of Consumer Sentiments. We use the weekly indices of consumer sentiments generated from CMIE’s Consumer Pyramids Household Survey for the purpose.

A full week after the presentation of the Union Budget, the Index of Consumer Sentiments fell 4.2 per cent. Contrast this with the nearly 9 per cent increase in equity market valuations response to the budget on the bourses. Households were not very impressed with the budget. On the contrary, they have expressed their displeasure with it.

The Index of Consumer Sentiments consists of two components. Both fell in the week following the presentation of the budget. The Index of Current Economic Conditions fell by 3.5 per cent and the Index of Consumer Expectations fell by 4.6 per cent. The greater fall in expectations is noteworthy. We discuss these expectations below.

The budget is about the future. It is about future government spending, future taxation and new government schemes. The index of consumer expectations also reflects household perceptions regarding their future in the present case, their well-being in the light of the budget presented by the government. The index of consumer expectations is derived from three questions.

One of the questions is do you expect the annual income of your household one year from now to be better, worse or the same compared to the past one year. Only 6.7 per cent said that they expected their income to improve over the period of a year. This was the same as the 6.7 per cent who responded similarly in the week just before the budget presentation. Apparently, the budget has not lifted the mood of the households. Further, a much larger 45.8 per cent said after the budget that they expected their incomes to worsen in a year. The proportion of households that expected a worsening of their incomes had increased from the 42.3 per cent who felt so in the week before the budget. The remaining 47.5 per cent expected their incomes to remain unchanged over the next one year.

The budget may or may not be the reason for household perceptions to worsen in a week since the presentation of the budget. But, sentiments have worsened after the budget.

The verdict of households on the economy is worse. Households seem to believe that the economy would do much worse than their own performance. There are two questions on the economy. The first asks the opinion of households on the financial and business conditions in the country in the next 12 months. The proportion of households that believe that the financial and business conditions would improve in the coming year declined from a very low 5.5 per cent in the week before the budget to 4.8 per cent after the budget. Those who believed that conditions would worsen increased from 44.9 per cent before the budget to 46.5 per cent after the budget. And, those who believed that there would be no change dropped a tad from 49.7 per cent to 48.7 per cent.

Expectations over a five year period are equally bad, if not worse. Before the budget, 7.1 per cent of households believed that the economy would improve over a five year period. After the budget, only 5.3 per cent of the households believed so. The proportion of households who believe that the economy would worsen over a period of five years has increased from 33.9 per cent before the budget to 35.5 per cent after the budget.

The sharp difference between the perception of equity market investors and households is another indicator of a K-shaped recovery emerging.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.8 0.0
Consumer Sentiments Index
Base September-December 2015
55.7 +0.3
Consumer Expectations Index
Base September-December 2015
57.7 0.0
Current Economic Conditions Index
Base September-December 2015
52.5 +0.9
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.83 0.91 1.33 0.93
Completed projects 1.73 0.26 0.72 0.69
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.29 0.11
Implementation stalled projects 10.22 0.09 0.07 0.12
Updated on: 07 Mar 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.3 1.5
 Expenses -1.8 -27.9 -10.3 -0.1
 Net profit -51.1 -40.3 47.2 58.8
 PAT margin (%) 2.2 5.3 8.4 8.6
 Count of Cos. 4,376 4,373 4,372 4,323
Non-financial Companies
 Income -9.0 -37.4 -10.5 0.0
 Expenses -4.8 -37.7 -14.2 -1.0
 Net profit -52.2 -56.0 31.5 55.7
 PAT margin (%) 3.1 4.5 8.1 9.0
 Net fixed assets 13.5 5.8
 Current assets 2.5 0.7
 Current liabilities 5.4 -2.8
 Borrowings 15.8 8.1
 Reserves & surplus 1.7 4.4
 Count of Cos. 3,257 3,255 3,254 3,223
Numbers are net of P&E
Updated on: 07 Mar 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.5 13.4 0.0
 Expenses 9.9 13.8 0.1
 Net profit -40.6 15.8 -10.5
 PAT margin (%) 1.9 2.2 3.7
 Assets 10.9 9.6 9.3
 Net worth 7.3 8.4 4.7
 RONW (%) 3.3 3.9 5.4
 Count of Cos. 30,466 29,959 11,603
Non-financial Companies
 Income 8.6 14.1 -2.9
 Expenses 8.8 14.3 -2.3
 Net profit -10.3 21.3 -22.4
 PAT margin (%) 2.7 3.0 3.6
 Net fixed assets 7.2 5.5 12.0
 Net worth 5.9 8.0 1.7
 RONW (%) 5.5 6.5 6.4
 Debt / Equity (times) 1.0 1.0 0.9
 Interest cover (times) 2.1 2.3 2.4
 Net working capital cycle (days) 79 72 61
 Count of Cos. 24,480 24,021 8,388
Numbers are net of P&E
Updated on: 05 Mar 2021 8:23AM