MUMBAI : As stock markets remain volatile ahead of next week’s Union budget, analysts and brokerages expect finance minister Nirmala Sitharaman’s proposals to be fiscally prudent and growth-supportive, amid concerns that it may also take a populist turn.

Investors are optimistic that the government will continue its growth agenda through higher capex allocation, which will accelerate the investment cycle and employment.

Divestment, focus on tax compliance, ease of doing business and support for micro, small and medium enterprises (MSMEs) and the rural economy are also some factors that markets will watch out for in budget this year.

Analysts at ICICI Direct expect fiscal conservatism to return gradually, given the likely inclusion of India in global bond indices.

The brokerage firm sees fiscal deficit to be contained at 6.3% of GDP against the 6.8% budgeted for FY22.

“With a goal to reach a $5-trillion economy by FY25, we expect capital expenditure allocation to continue to remain higher for FY23 as well, while healthy tax revenues and a mega disinvestment pipeline may help contain fiscal deficit to 5%," it said.

ICICI Direct expects FY23 capital expenditure outlay to increase 26.8% to touch Rs7 trillion, with significant allocation in roads, defence, railways, water and urban infrastructure.

Disinvestment proceeds for FY22 are expected to fall far short of budget estimates.

With disinvestment of only Rs12,030 crore in FY22, including Air India, analysts believe many of the large-ticket stake sales will happen only in FY23.

Divestment of Bharat Petroleum Corp. Ltd, IDBI Bank, Shipping Corp., Pawan Hans and BEML are expected in FT23, besides privatization of two public sector banks and the initial public offering of Life Insurance Corp. of India.

According to B. Gopkumar, managing director and CEO of Axis Securities, as new covid variants and related uncertainties keep markets on the edge, the Union budget is expected to bring about some confidence and stability.

“With state elections lined up in over five states in 2022, we believe that a focus on job creation and investment-driven growth would be paramount. We see that asset monetization and higher disinvestment will continue to fund development projects. To boost consumption, we expect an increase in the limit of standard deduction and home loan tax deductions. Overall, we believe that policy reforms and government spending on infrastructure development will boost economic recovery, giving ample opportunities to retail investors for growth," Gopkumar said.

However, some remain concerned about the budget turning populist instead of a growth-focused one.

“With seven states going into elections in 2022 and five of them gearing up for it in February, concerns around this budget turning into a populist one are simmering. Despite the polls’ pressure, we expect the budget to stick to the reform agenda. While budget-making is always a challenging exercise, the demand for continued support to growth, especially during the current pandemic-struck times, makes this task even more daunting. While there are headwinds to direct tax revenue collection, we are quite hopeful for a big turnaround on the divestment front. At the same time, pressures of elevated revenue expenditure, particularly subsidy, are expected to moderate as we go into FY23. Capex spend will remain a key focus area in our view," said BofA Securities.

Nikhil Gupta, an analyst at Motilal Oswal Financial Services, said the lower spending growth in the first eight months of FY22 is puzzling, given that tax collections have been buoyant.

Besides critical macro numbers, Gupta will closely track the budget for announcements in three areas: self-liquidating temporary personal job/income supporting measures to boost private consumption in the immediate future; measures to support the rural economy amid its weakening and the impending state elections; and measures to revive the residential real estate sector.