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Union Finance MInister Nirmala Sitharaman will present the first full budget of Modi 3.0 government on July 23. While there is an anticipation that the welfare spending would take an upper hand over capex in the upcoming budget, analysts at Sharekhan expect that the government will adhere to a fiscal consolidation path.
The brokerage firm expects the recent massive surplus transfer by the Reserve Bank of India (RBI) to the government will create additional fiscal space for further consolidation. Consequently, the upcoming budget 2024 is expected to emphasize quality expenditure by increasing the allocation for capital expenditure, thereby supporting sustained economic growth.
“Taking cues from the past coalition government period (especially during 2000-04), our expectation is that the government will adhere to a fiscal consolidation path and target a fiscal deficit lower than 5.1% of GDP for FY25 and announce a further consolidation to below 4.5% of GDP by FY26,” Sharekhan said in a report.
Moreover, the government is expected to look to extend measures to support the rural economy, state welfare (supporting coalition partners’ states), generate employment and further support MSMEs.
“Overall, we expect the government to stick to its pre-election policy mandate, with no material change in intent. We expect the government to strike a good balance between fiscal consolidation, growth and welfare schemes for the rural economy given it has room owing to the higher-than-expected dividend transfer from the RBI last month,” Sharekhan said.
Here are key Budget expectations by Sharekhan:
Fiscal Consolidation: Sharekhan expects the government to adhere to its fiscal consolidation path and retain the fiscal deficit target of 5.1% of GDP for FY25, while also aiming at a figure of 4.5% of GDP by FY26.
“The projected growth of 11.5% in gross revenue for FY25 looks reasonable given 10.5% nominal GDP growth forecasted in FY25,” Sharekhan said.
However, it believes if the coalition partners demand for state-specific packages, then there could be a challenge.
Quality spending: The brokerage firm believes the government may also look to incentivise private capex. Thus, continuation of existing policy framework including the PLI scheme, promotion of green technology, digital push fiscal discipline along with extension of capex programs would be considered encouraging in the current investment environment.
At the same time, maintaining fiscal prudence is a key positive, it said.
Rural economy: In addition to the focus on an investment-led push to the economy, measures to boost the rural economy would be on the agenda, according to Sharekhan.
The government may either look to increase the installment amount under the PM Kisan Nidhi Scheme as an alternative to guaranteeing the MSP for all crops. It may also look to increase rural housing credit subsidy, provide women & child SOPs (interim relief to boost consumption), give job guarantees through various skill development schemes such as Pradhan Mantri Kaushal Vikas Yojna, giving the impression that government is taking care of roti, kapda, makan, Sharekhan said.
This may bode well for rural-focused sectors such as consumers, auto-ancillaries, building materials, among others.
Indian stock market has seen a sharp rally and the Nifty 50 and Sensex are trading at all-time highs and have given strong returns in the last 12 months.
According to Sharekhan, the Nifty’s valuation of 21.7x/18.9x and FY25/26E earnings is still reasonable, given expectations of a likely reversal of the interest rate cycle globally in CY24, a strong domestic growth outlook and healthy corporate earnings outlook.
“Strong GDP growth (of over 7%), fiscal consolidation will add to India’s long-term structural growth narrative. We stay constructive on equities and are overweight on key sectors such as banks, industrial/ engineering, automobiles, real estate and Tactical positive on IT, Pharma and selective speciality chemicals space,” Sharekhan said.
In the FMCG sector, Sharekhan’s top stock picks are Hindustan Unilever, ITC, Dabur India and Emami.
In the Auto sector, it picks Hero MotoCorp, Bajaj Auto, M&M, Tata Motors.
UltraTech, L&T, PNC Infratech, NTPC, PowerGrid Corporation of India, Coal India, VA Tech Wabag, DEE Development, Triveni Turbines, Supreme Industries, Tata Power and CESC are the budget stock picks in the Infrastructure/ Power/ Capital Goods sectors.
Sharekhan’s defence stock picks include Hindustan Aeronautics Ltd (HAL), BEL and Bharat Forge.
Discretionary consumption and real estate sector picks include Samhi Hotels, Chalet Hotels, Wonderla Holidays, DLF, Sunteck Realty, Arvind Smart, ABDL.
In the Financials, Sharekhan’s stock picks are SBI, Bank of India, PNB, LIC Housing, Can Fin Homes, ICICI Bank, Axis Bank, HDFC Bank and ICICI Lombard General Insurance Company.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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