Finance Minister Nirmala Sitharaman is gearing up to present India's budget for the fiscal year 2024-25 on July 23, marking the first budget of Modi 3.0 following the Lok Sabha elections. The budget is eagerly anticipated amidst expectations for the future trajectory of Asia's third-largest economy.
Speculation abounds regarding potential adjustments to personal taxes and increased spending in consumer-focused sectors under the NDA government. Brokerage firms foresee several sectors benefiting from heightened consumption, including consumer goods, real estate, housing finance, infrastructure, and automobiles. However, challenges may also loom for certain sectors.
According to reports, the government is likely to allocate more funds towards rural schemes aimed at boosting consumption. This is expected to benefit companies such as Hindustan Unilever, TVS Motor, and Hero MotoCorp, as highlighted in a report by Citi cited by Reuters.
Jefferies noted that a modest increase in tobacco taxes could positively impact ITC, India's largest cigarette maker.
HSBC anticipates the continuation of production-linked incentive schemes to stimulate local manufacturing and job creation, potentially benefiting companies like Dixon Technologies, Ideaforge Technology, and Biocon. Meanwhile, capital goods firms such as Larsen & Toubro could profit from increased capital expenditure, according to Jefferies.
Citi also mentioned potential increases in allocations for affordable housing, which could favor developers like Macrotech Developers and Sunteck Realty. Similarly, an interest subsidy scheme for urban housing might benefit firms like Aavas Financiers and Home First Finance, noted Jefferies.
India has allocated substantial subsidies over five years to promote electric vehicle (EV) adoption, with analysts from Macquarie expecting the government to maintain these incentives. This could benefit key players in the EV sector such as Tata Motors, Ola Electric, Olectra Greentech, and JBM Auto. Conversely, any reduction in EV subsidies might favor Maruti Suzuki, which has focused on hybrid vehicles over fully electric models.
Taxation remains a critical focus, with Morgan Stanley suggesting that any adjustments to capital gains tax, such as extending the holding period or increasing tax rates, could potentially dampen equity markets, although such changes are considered unlikely. These adjustments could increase the tax burden on equity and mutual fund investors, potentially affecting trading activity and impacting brokerages such as Motilal Oswal, ICICI Securities, Angel One, and 5 Paisa.
The mutual fund industry has advocated for exempting mutual fund units from long-term capital gains tax, aiming to maintain investor interest in these instruments.
Regulators and the government are also reportedly considering measures to curb derivatives trading, citing its speculative nature, which has significantly influenced stock market dynamics post-COVID-19 pandemic. Jefferies cautioned that such regulatory changes, including higher taxes, could potentially suppress market activity and impact brokerages and trading platforms.
As stakeholders await the budget announcement, the focus remains on how the government's fiscal policies will shape various sectors and influence economic growth in the coming fiscal year.
