Tax reforms may be a key highlight of Budget; real estate, railway sectors to be in focus: Manish Chowdhury of StoxBox | Stock Market News
In Budget 2025, the government will continue to prioritise fiscal prudence to foster economic growth, says Manish Chowdhury, Head of Research at StoxBox. He believes tax reforms may be a key highlight of the Budget, with rationalised tax rates likely to relieve taxpayers and increase consumption, thereby boosting demand. In an interview with Mint, Chowdhury shared his views on markets and sectors that could be in focus after the Budget.
Edited excerpts:
Should we expect fireworks in Budget 2025?
As the Union Budget 2025 approaches, anticipation is at an all-time high about policy interventions to boost growth.
Markets are looking out for measures that address key economic challenges while fostering a business-friendly environment.
Considering the government’s efforts to meet its FY25 fiscal deficit target of 4.9 per cent, it is anticipated that the government will continue to prioritise fiscal prudence to foster economic growth.
Consequently, we expect the fiscal deficit target for FY26 to be set at 4.5 per cent, with the government approaching a balanced approach between budgetary consolidation and growth-centric initiatives, which is likely to set a positive tone for markets.
Which budgetary measures could boost market sentiment?
With the recent moderation in GDP numbers, the government is anticipated to prioritise measures to boost job creation, implement business-friendly reforms, and stimulate the manufacturing sector.
Tax reforms are expected to be a key highlight of the Budget, with rationalised tax rates likely to relieve taxpayers and increase consumption, thereby boosting demand.
The given measures are anticipated to resonate positively with market sentiment, fostering a conducive climate for economic growth and investor confidence.
Additionally, improved allocation towards capital expenditure (capex) and targeted sectoral incentives hold significant potential to uplift market sentiment.
What sectors may attract investor attention after the Budget?
Several sectors are expected to attract investor attention following the Budget due to anticipated policy measures and increased allocations.
The real estate sector could see benefits from a revision of the affordable housing bracket based on city-specific dynamics, addressing challenges such as rising raw material and land costs.
Measures like higher home loan interest deductions, subsidies for developers, and incentives for foreign investments in commercial real estate are likely to stimulate growth.
The cement sector is poised to gain from increased government capex, expected to rise by 10-12 per cent from ₹11.11 lakh crore, with significant funding under the National Infrastructure Pipeline, PM Gati Shakti, and Bharatmala Pariyojana for highway development.
The railway sector is anticipated to receive a 15-18 per cent increase in budget allocation, focusing on safety enhancements like the Kavach anti-collision system, modernisation of 1,275 stations, and expansion of Vande Bharat trains.
Additionally, the road/construction sector may benefit from a 5-6 per cent rise in budget allocation for MoRTH, increased rural road development under PMGSY’s fourth phase, and a continued emphasis on road safety and highway construction.
How should we play the Indian story in light of recent revisions in growth estimates?
In light of the recent revision in the growth estimates where India’s economy is showing signs of a slowdown, one can play India’s story by focusing on sectors and strategies that align with the country’s growing dynamics.
This slowdown was mainly due to weak consumption, particularly in urban areas, which was driven by increased food inflation, high borrowing costs and low wage growth.
In order to address these issues, we anticipate that the government will prioritise the growth of domestic consumption in both urban and rural areas.
Some measures may include tweaking income tax structures and enhancing tax incentives under various sections to ensure high disposable income in the hands of people.
Additionally, we expect enhanced allocation to social schemes such as MNREGA and PM-KISAN, along with improving the quality of expenditure, which would help create jobs for the economy.
Hence, we prefer FMCG as a sectoral play on the consumption side. Further, the government’s continued focus on developing infrastructure will be a growth booster, enhancing the overall economy.
What is your assessment of the ongoing Q3 earnings? What sectors could see upgrades and downgrades?
The Q3FY25 earnings season so far has been mixed, with sector-specific factors driving performance.
Large private banks offer comfort compared to PSU peers as they have proactively restructured their loan books and leveraged their experience navigating similar credit cycles, positioning them favourably to manage upcoming challenges.
The pharma sector is also in focus, driven by better performance in the US generics market, robust results in branded markets, and a moderation in raw material costs.
Additionally, pharmaceutical companies have strengthened their presence in chronic therapies, prioritised new product introductions, and explored new therapies to capitalise on emerging opportunities.
The automobile sector, particularly 2W space, has performed well, backed by festive season sales, strong consumer demand, and easing supply chain constraints.
However, the outlook for the overall sector remains cautiously optimistic, with issues persisting in PVs, particularly in small cars.
Despite some challenges, the cautiously optimistic outlook underscores the industry’s potential to set a positive tone in upcoming quarters, led by a strategic combination of new launches, recovery in rural demand and premiumisation.
In contrast, the metals sector is not expected to perform well during the quarter as falling global commodity prices and weak Chinese demand are likely to weigh on earnings.
Margins could remain compressed despite some relief from lower coking coal prices. The FMCG sector is also likely to witness flattish volume growth, with some uptick in rural markets offset by slowing urban demand.
While companies with premium product portfolios may fare better, margin recovery may still be a challenge due to inflationary pressures on raw materials.
6. How do you see the growth-inflation dynamics unfolding this year?
In the first half of the current financial year (H1FY25), India faced growth-related challenges, mainly due to lower capital expenditure from the government due to election season, seasonal factors such as severe heatwaves and incessant rainfall in some areas, weak corporate earnings, and slower consumption patterns, particularly from the urban areas due to increased food inflation and low wage growth.
This trend is expected to recover in the second half of FY25 owing to improved corporate earnings, higher government spending, especially in the infrastructure sector, and lower food inflation due to the seasonal winter effect and the expectation of a good rabi harvest.
Further, the RBI is expected to cut interest rates and take measures to boost liquidity, which is expected to aid overall economic growth.
Overall, the growth-inflation dynamic is gradually expected to come under control, with better growth prospects and receding inflationary pressures.
Considering the global and domestic factors, would you prefer value or growth for the next one year?
Considering the current global and domestic scenario, we would prefer to invest in value stocks rather than growth stocks, as the economy’s growth is expected to see a gradual recovery.
Due to the recent market correction, value-based stocks are expected to show more resilience and be safer in this volatility.
Also, we believe that the valuation comfort in growth stocks is still missing despite the correction in markets, as most positives are still seemingly priced in growth stocks.
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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
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