The upcoming budget is expected to strike a good balance between fiscal consolidation, growth, and rural welfare schemes, supported by the RBI’s higher-than-expected dividend transfer.
Given the resilience of the Indian economy, the focus would remain on quality spending by increasing the outlay for capital expenditure to sustain healthy growth.
As the first full-year Budget following the formation of the NDA 3.0 government, market participants are keenly observing its potential effects on the Indian economy and market. Brokerage house Axis Securities believes, at the current juncture, the Budget will likely strengthen the narrative of “Viksit Bharat” by 2047, following a transformation similar to the one witnessed in the last decade.
Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, said: “After the formation of the NDA 3.0 government, expectations from the market are growing towards some allocation for the bottom of the pyramid to address rural challenges, alongside some cutoff on Capex spending. We believe that, at the current juncture, the budget is likely to strike a balance between Capex spending and addressing rural challenges. Nonetheless, a higher-than-expected RBI dividend has provided some cushion to move further towards welfare schemes. Currently, the market is keenly watching developments towards the capital gains tax. Any deviation from market expectations could attract some negative reaction in the short term. However, the chances of this occurring appear slim,” said the brokerage.
Recommending stocks for the upcoming Budget, Axis stated that its positive play (in coverage) includes Hero MotoCorp, UltraTech Cement, Nestle, NTPC, Praj Industries, Inox Wind, J Kumar Infra, Ahluwalia Contracts, and V-Mart. Meanwhile, among stocks not under its coverage, Axis favors M&M for its rural play, Power Grid for its power transmission Capex, Va Tech Wabag for the sustainable water theme, Bharat Electronics for the indigenisation of the defence sector, and Sarvotech Power for the EV charging station theme.
Sector-wise Expectations
BFSI: Axis anticipates that this Budget will continue to emphasise capital expenditure (Capex), with a focus on power and renewable energy, leading to higher allocation and an increased number of schemes in this sector. Additionally, it expects clarification regarding the potential privatisation of certain PSU banks, as previously announced by the government. The forthcoming budget may also renew emphasis on housing schemes in rural markets.
Preferred banks for these initiatives include SBI, BoB, CANBK, HDFC Bank, and ICICI Bank. PFC, REC, and IREDA could also remain in focus, along with PSU banks and rural-focused housing financiers such as Aptus, India Shelter Finance, Aavas, and SFBs pursuing growth in rural areas.
Infrastructure: Axis expects the Union Budget 2024-25 to significantly increase capital outlay for the infrastructure sector to achieve targets set under the National Infrastructure Pipeline and Gati Shakti Master Plan. The focus is anticipated to be on key infrastructure segments such as roads, railways, airports, and urban infrastructure, with a 10-15 percent higher allocation year-over-year for the Ministry of Road Transport & Highways and a similarly increased Budget for railways. Dedicated allocations to larger infrastructure projects like the Jal Jeevan Mission, High-Speed Rail, Smart Cities, and Inland Waterways Development are also expected.
Additionally, there will likely be a focus on developing industrial infrastructure and cleaner energy alternatives. Measures to improve long-term funding availability for the infrastructure sector are anticipated. With the government’s heightened focus on overall infrastructure development, particularly in highways, railways, and urban infrastructure, companies operating in these segments are poised to encounter massive opportunities. Notable stocks include KNR Construction, PNC Infratech, RITES, KEC International, J Kumar Infraprojects, and Ahluwalia Contracts, recommended Axis.
Cement: Axis expects the upcoming Budget to facilitate and expand overall infra development which will positively benefit cement companies with higher demand. Stocks in focus are UltraTech, Ambuja Cements, Dalmia Bharat, JK Cement, JK Lakshmi, and Birla Corp.
Auto & Ancillaries: With the Union Budget 2024-25 being the first after the general elections, the government’s key focus is expected to be on boosting rural consumption. This would support discretionary spending, benefiting rural-focused two-wheelers (2Ws) and entry-level four-wheeler (4W) original equipment manufacturers (OEMs), along with auto ancillary companies supplying to these OEMs, said the brokerage.
The introduction of the FAME-III subsidy from July 2024, with a focus on charging infrastructure, will significantly boost the sector. This initiative, along with support for energy storage systems and R&D for clean energy, green mobility, and semiconductors, will greatly aid the auto sector. Additionally, the reduction and unification of GST rates to 18 percent from the high 28 percent GST rate. The EV industry also anticipates a reduction in GST on Advanced Chemistry Cell (ACC) batteries to align with the 5 percent rate for EVs. Further, a long-term sustainable roadmap in the Production Linked Incentive (PLI) space, particularly focusing on the MSME segment, which forms the backbone of the economy, is crucial.
Positive beneficiaries in this context include Mahindra & Mahindra, Hero MotoCorp for auto OEMs, Minda Corp and Sansera Engineering for auto components, and Servotech Power and Bosch for EV charging infrastructure, it added.
Power: To achieve India’s 500 GW renewable energy target by 2030, reforms like increased viability gap funding for battery storage, offshore wind, and solar are crucial. Public-private partnerships and sustainable financing will support this. The Budget may focus on rooftop solar, Compressed Biogas, Ethanol, and Green Hydrogen, with the National Green Hydrogen Mission likely seeing increased funding. Hydropower and grid stability incentives are anticipated, along with extended ISTS waiver eligibility, said Axis. Infrastructure investment, GST reductions on solar devices, and potential custom-duty cuts on renewables are also expected. Data center growth will drive power demand, benefiting companies like NTPC, CESC, Tata Power, Inox Wind, Suzlon, Sterling & Wilson, and Power Grid.
FMCG: The brokerage expects investments in digital infrastructure, skill development, and MSME support to indirectly stimulate consumption in the economy, particularly in rural areas. It also anticipates schemes to boost agricultural income and rural household finances, including initiatives like the LPG subsidy through PMUY, which are poised to strengthen ahead of upcoming elections. Increased funding for rural infrastructure and connectivity improvements will likely drive consumption. However, proposed excise or NCCD duty hikes on cigarettes and tobacco products may have a negative impact, it added. FMCG companies like Dabur, HUL, Nestle, and Britannia could benefit, along with retailers like Trent and Westlife Foodworld, while companies like ITC, Godfrey Phillip, and VST Industries may face challenges.
Metals: The sector anticipates a boost from increased infrastructure spending and logistics development, alongside potential announcements in housing, manufacturing, and construction, said Axis. Recent trends show India becoming a net steel importer due to competitive pressures from cheap Chinese exports, prompting calls for higher import duties and customs adjustments. The sector also awaits financial incentives for mineral exploration and updates on PLI schemes, especially in green energy transitions. Tax rationalisation on critical raw materials like natural gas and electricity, as well as adjustments in import duties for materials like Ferro-nickel and Ferro-molybdenum, are critical industry demands. Increased Budget allocations for construction and infrastructure could drive domestic steel demand, benefiting stocks such as Tata Steel, JSW Steel, JSPL, SAIL, Hindalco, NALCO, and Jindal Stainless.
Midcaps: In the upcoming Budget, Axis anticipates continued focus on PLI incentives to foster growth in emerging sectors, bolstering the Atmanirbhar Bharat initiative aimed at enhancing manufacturing capabilities and boosting exports while managing imports. It expects the government to reinforce its commitment to sustainability through initiatives in renewable energy and alternative technologies, alongside significant investments in infrastructure development across sectors like defence, railways, and roads.
The Budget might also address concerns in the agricultural sector by potentially revising the Fair and Remunerative Price (FRP) of sugarcane and considering adjustments in sugar MSP or facilitating sugar exports for ethanol production. Additionally, with ambitions to achieve net zero emissions by 2070, the government is likely to announce measures promoting biofuels, including revised ethanol prices, financial aid for machinery procurement, and other initiatives to bolster the biofuel ecosystem, noted Axis.
The Union Budget for FY24-25 is poised to play a pivotal role in shaping India’s economic trajectory. With expectations centered on higher Capex and rural spending, job creation, and fiscal consolidation, the Budget aims to drive growth while maintaining stability. As the NDA 3.0 government navigates these priorities, market participants and stakeholders will closely monitor the outcomes, particularly in the context of broader economic goals and the vision for a developed India by 2047.
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