Budget 2025: Fiscal deficit target of 4.5-4.6% may bolster Indian stock market sentiment, says Sewani of LGT Wealth

Budget 2025 expectations: Gautam Sewani, Managing Director-Private Clients at LGT Wealth India Pvt. Ltd., believes the Budget 2025 may focus on fiscal prudence and introduce measures to stimulate economic growth. He said a fiscal deficit target of 4.5-4.6 per cent of GDP could boost Indian stock market sentiment. In an interview with Mint, Sewani shared his views on markets, the "Trump factor", and Q3 earnings.

Edited excerpts:

What are your expectations from Budget 2025?

The upcoming Union Budget for FY26 is likely to emphasise fiscal prudence while introducing measures to stimulate economic growth.

A fiscal deficit target of 4.5-4.6 per cent of GDP is expected, which could bolster market sentiment. However, balancing muted revenue growth with expenditure demands will be a significant challenge.

What budgetary announcements could dispel the gloom in the Indian stock market?

The upcoming budget will be critical, as it marks the first full-year budget under the Modi 3.0 government and could set the tone for renewed optimism in the Indian stock market.

Rationalising capital gains taxes, particularly by lowering tax rates on long-term capital gains, could significantly boost market sentiment.

There is also considerable anticipation around income tax reforms, such as increasing the basic exemption limits under both old and new tax regimes, which could enhance disposable incomes and spur consumption.

Additionally, measures aimed at boosting manufacturing, creating jobs, and accelerating economic activity will be closely watched. Announcements addressing these areas could dispel market gloom and provide the necessary impetus for investor confidence.

What should be our equity investment strategy at this juncture? Should we hold cash and wait for more correction?

At this juncture, maintaining some cash in your portfolio could be a prudent strategy, allowing you to capitalise on opportunities in sectors expected to benefit from positive budgetary announcements.

Budgets often trigger sectoral shifts, with fiscal policies and government spending plans influencing the performance of various industries.

Diversification remains key—spreading investments across multiple sectors can mitigate risks and ensure you capture growth in other parts of the market.

Investors can shield their portfolios from abrupt market swings and position for long-term gains by focusing on fundamentally strong companies.

What are the key concerns that equity investors can't overlook at this time?

At this time, equity investors should remain vigilant of several critical concerns.

A pro-people budget could strain the fiscal deficit, causing rupee depreciation, restricted rate cuts, and slower economic recovery.

Any deviation from fiscal discipline or weaker growth projections might trigger a market selloff.

Furthermore, disappointing Q3FY25 earnings may exacerbate equities' corrections.

On the global front, a stronger US dollar and rising bond yields reduce the appeal of Indian equities, potentially impacting foreign investment inflows.

How could the "Trump factor" influence market sentiment?

The severity of trade restrictions under Trump’s administration will be a key determinant.

Softer trade policies may drive inflows into export-oriented emerging markets like China, potentially leading to India’s underperformance in a broader emerging market (EM) rally.

Conversely, stricter policies could favour India by accelerating its growth as a manufacturing hub.

India stands to benefit from the continuation of the "China + 1" strategy, which supports export-driven sectors as companies diversify supply chains away from China.

However, inflationary pressures from Trump’s policies could delay interest rate cuts globally, further influencing market dynamics.

This complex interplay of trade barriers and shifting supply chains may create challenges and opportunities for India, underscoring the need for a balanced investment approach.

What's your assessment of Q3 earnings? Should we brace for another weak quarter of earnings?

Q3FY25 earnings are likely to show a recovery following negative growth in Q2, with key sectors displaying mixed performance. 

Domestic cyclicals may deliver varied results; while autos face headwinds, banks are expected to post robust earnings growth driven by strong credit demand and stable asset quality.

Commodities-oriented sectors, including metals and cement, may remain laggards, while energy stocks could see modest growth. Mid-cap stocks may outperform their large-cap and small-cap counterparts in earnings growth.

What sectors are on your radar for the next one to two years for investment opportunities?

Capex related sectors particularly on the private side (like semiconductors) could be a pocket to watch out for. Renewable energy plays (preferably indirect or second order) are also attractive, especially in the transmission and distribution space. 

Certain pockets within consumption (like gold, jewellery, and hotels) could also be in focus, as witnessed by the lifetime-high Nov-24 gold imports and decent room rates in certain attractively valued hotels’ RevPar (revenue per available room) and occupancy rates to increase to more comfortable levels.

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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.