InvestorQ : Are there any sectors that have been negatively impacted by the Union Budget announcements?
Angel dcosta made post

Are there any sectors that have been negatively impacted by the Union Budget announcements?

Answer
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7 months ago


Broadly, two sectors have been hit; the insurance and banking sector. To an extent, AMCs also have reasons to worry about. Insurance sector was the clear loser on the day of Union budget and the reasons are not far to seek. The LIC IPO is expected to crowd out private insurers and the scarcity premium could vanish. Also, the dual tax regime could mean that the basic tax related attraction of life and health policies may not exist any longer. Insurers really need to rethink their strategy under these conditions. This will apply to AMCs too although only to the ELSS story. Debt funds could get hit by the higher levels of fiscal deficit and the impact of the same on bond yields and on bond prices.

Bank Nifty was also impacted as PSU banks took it on their chin. Most banking stocks took a sharp hit on the day of the budget. Firstly, budget has not made any provision for the recapitalization of banks. Clearly, after sinking in Rs.3.50 trillion, the FM is not keen on putting further funds. This is likely to be a dampener for the banks. The second thing working against banks is the high fiscal deficit. It is likely to lead to crowding out of private debt and also a spike in yields. With huge bond portfolios, this represents a huge price risk for the public sector banks.