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The upcoming Union Budget 2025 is generating significant anticipation, with expectations high for policy interventions aimed at stimulating economic growth. Manish Chowdhury, Head of Research at StoxBox, anticipates that the government will maintain its commitment to fiscal prudence, aiming for a fiscal deficit target of 4.5% in FY26, balancing budgetary consolidation with growth-centric initiatives. This approach is expected to positively influence market sentiment. Key measures anticipated to boost market sentiment include job creation initiatives, business-friendly reforms, and a focus on stimulating the manufacturing sector. Tax reforms, specifically rationalized tax rates, are expected to be a central feature of the budget, aiming to alleviate the burden on taxpayers, increase consumption, and thereby boost overall demand.
Several sectors are poised to benefit from the anticipated budgetary measures and increased allocations. The real estate sector is expected to see positive impacts from revisions to the affordable housing bracket, addressing the challenges of rising raw material and land costs. Further stimulus is anticipated through measures such as higher home loan interest deductions, subsidies for developers, and incentives for foreign investment in commercial real estate. The cement sector is expected to experience growth driven by increased government capital expenditure (capex), projected to rise by 10-12% from ₹11.11 lakh crore. Significant funding under initiatives like the National Infrastructure Pipeline, PM Gati Shakti, and Bharatmala Pariyojana for highway development will further fuel this growth. The railway sector is also anticipated to receive a substantial boost, with a projected 15-18% increase in budget allocation focusing on safety enhancements (Kavach anti-collision system), station modernization (1,275 stations), and expansion of the Vande Bharat train network. The road/construction sector is expected to benefit from a 5-6% increase in budget allocation for MoRTH, increased rural road development under PMGSY’s fourth phase, and continued emphasis on road safety and highway construction.
Addressing the recent slowdown in India's economic growth, primarily attributed to weak consumption (particularly in urban areas due to factors like increased food inflation, high borrowing costs, and low wage growth), the government is likely to prioritize measures to stimulate domestic consumption in both urban and rural areas. Potential measures include adjustments to income tax structures, enhanced tax incentives, increased allocation to social schemes such as MNREGA and PM-KISAN, and improved quality of expenditure to generate jobs. Given this focus on consumption, the FMCG sector is identified as a promising investment area. The government's sustained emphasis on infrastructure development is also viewed as a crucial driver of overall economic growth. The Q3FY25 earnings season has presented a mixed picture, with sector-specific factors significantly influencing performance. Large private banks are seen as relatively robust compared to their PSU counterparts due to proactive loan book restructuring and experience in managing credit cycles. The pharma sector has demonstrated strong performance, fueled by success in the US generics market, robust results in branded markets, and a moderation in raw material costs. The automobile sector, particularly the two-wheeler segment, has also performed well, driven by festive season sales, strong consumer demand, and easing supply chain constraints. However, the outlook for passenger vehicles, particularly small cars, remains cautiously optimistic.
Conversely, the metals sector is expected to underperform due to falling global commodity prices and weak Chinese demand, leading to compressed margins despite some relief from lower coking coal prices. The FMCG sector anticipates flattish volume growth, with any uptick in rural markets offset by slowing urban demand. Companies with premium product portfolios may fare better, but margin recovery may remain a challenge due to persistent inflationary pressures on raw materials. The growth-inflation dynamic is expected to improve in the second half of FY25 due to several factors: improved corporate earnings, increased government spending (particularly in infrastructure), lower food inflation (seasonal winter effects and anticipated good rabi harvest), potential interest rate cuts by the RBI, and measures to boost liquidity. Considering the current global and domestic economic climate, a preference for value stocks over growth stocks is suggested. This is based on the expectation of a gradual economic recovery and the perceived resilience and safety of value-based stocks in volatile market conditions. The valuation of growth stocks is considered less attractive, with many positive factors already seemingly priced in, despite market corrections.
In conclusion, the Union Budget 2025 is anticipated to be a significant event, shaping India's economic trajectory in the coming year. The government's focus on fiscal prudence, combined with strategic investments in infrastructure and targeted tax reforms, is expected to positively impact several key sectors. While challenges remain, particularly related to consumption and global economic uncertainty, the overall outlook suggests a cautiously optimistic approach to the Indian economy's growth and potential for investors to benefit from this anticipated recovery. The preference for value stocks over growth stocks reflects a strategic response to the current market dynamics and the anticipated trajectory of the Indian economy in the coming year.