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Business News/ Markets / Stock Markets/  Nifty Realty vs Nifty Energy: Which index should one bet on ahead of Budget 2024?

Nifty Realty vs Nifty Energy: Which index should one bet on ahead of Budget 2024?

With the Budget in mind, let's find out between Nifty Realty and Nifty Energy, which sector should investors pick. The Budget will be announced on February 1, 2024. Since the general elections will be held in May, this will be the Interim Budget and a new Budget will be presented in July.

The Budget will be announced on February 1, 2024.

The Nifty50 and Sensex, India's key stock market indices, faced a third consecutive session of losses on January 18. Over the three sessions, both indices experienced a 3 percent decline. The market downturn was attributed to increasing US bond yields, driven by strong economic data in the US. This raised concerns about potential delays in interest rate cuts. Additionally, the market benchmarks were negatively influenced by significant losses in the shares of HDFC Bank, a heavyweight in the market.

Going ahead, the market is likely to remain volatile ahead of the Budget. The Budget will be announced on February 1, 2024. Since the general elections will be held in May, this will be the Interim Budget and a new Budget will be presented in July.

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This Budget is likely to focus on capex, manufacturing push, and macro stability. The government's primary emphasis will persist in fostering economic growth through increased capital investment and infrastructure development. Sectors such as manufacturing and renewable energy will receive additional stimulus.

Read here: Budget 2024 expectations: FAME to GST, here is the EV sector wishlist

With the Budget in mind, let's find out between Nifty Realty and Nifty Energy, which sector should investors pick.

First, let's take a look at their market performance.

Before the recent correction, earlier this week, the benchmark Nifty surpassed a new landmark of 22,000 while Sensex crossed the 73,000 mark for the first time ever on January 15.

Nifty Realty also hit a new high of 894.40 on January 15, 2024, surging over 141 percent from its 52-week low of 370.65, hit on March 29, 2023. Meanwhile, Nifty Energy also hit a record high of 35,495.55 on January 16, rallying 64 percent from its 52-week low of 21,631.10, hit on February 28, 2023.

In the last 1 year, the Nifty Realty index has performed better than the Energy index. The Realty index rose 99 percent in this period as against a 32 percent rise in Nifty Energy.

Read here: Budget 2024 | 10 Key Moments From Modi Government's 10 Budgets | A Look-Back

Looking at 2023, both of these sectors have outperformed the benchmark Nifty. However, Nifty Realty is the better-performing index. The index soared over 70 percent in 2023 as against a 42 percent rise in Nifty Energy. In comparison, the benchmark Nifty has gained over 15 percent in this period.

Meanwhile, just in January so far, Nifty Realty has advanced over 10 percent, rising for the 5th consecutive month since September 2023. Between Sept and January, it has jumped over 60 percent.

Meanwhile, Nifty Energy added over 3 percent in January so far, extending gains for the third straight month since November 2023. Between Nov and January, it has jumped over 32 percent.

Read here: Budget 2024: Focus on rural schemes, infra investment likely, says Mihir Vora

In 2023, both Nifty Realty and Nifty Energy gave positive returns in 8 of the 12 months.

In the long term (3 years) as well, both indices have given multibagger returns. Nifty Realty has skyrocketed over 192 percent in the last 3 years while Nifty Energy has jumped 120 percent.

Constituents

Of the 10 stocks in the Nifty Realty index, all gave positive returns in the last 1 year as well as January 2024 so far. Meanwhile, of the 10 stocks in the Nifty Energy index, 8 stocks were in the green in the last 1 year and in January 2024 till date.

In the Nifty Realty index, 5 constituents gave multibagger returns with Prestige Estates soaring the most, up 190 percent, followed by Sobha, Brigade Enterprises, DLF, and Macrotech Developers, rallying between 101 percent and 135 percent. Meanwhile, Godrej Properties, Phoenix Mills, Oberoi Realty, Indiabulls Real Estate and Sunteck Realty also jumped between 26 percent and 89 percent each.

Read here: Budget 2024: ICRA predicts these changes for markets, mutual funds and taxation

On the other hand, in the Nifty Energy index, NTPC was the top-performing stock, up over 80 percent in the last one year, followed by Indian Oil, Tata Power, GAIL, and ONGC, up over 50 percent each. PowerGrid, BPCL, and RIL also added between 22 and 39 percent. However, Adani Green has shed almost 20 percent and Adani Energy Solutions tanked over 61 percent in the last 1 year.

Which sector should investors pick with the budget in mind?

Deepak Jasani, Head of Retail Research, HDFC Securities, likes Nifty Energy over Nifty Realty.

Although there would be some buildup of expectations ahead of the vote on account, we think that major policy reforms may get postponed to the regular Budget due in June/July 2024. This has also been hinted at by the FM in December 2023. The vote on the account could be shorn of any mega announcements or large benefits to people. The government is likely to stay on the fiscal course-correction glide path in the Interim Budget for FY25, shunning populist spending or incentives ahead of the summer general election. If not any big changes, Sitharaman can certainly consider some streamlining of income tax rules. She may hike standard deductions, and basic exemption limits and extend tax benefits to encourage manufacturing, but these may not have any material impact on the deficit.

While sops for two (poor and farmers)out of four castes (as per PM Modi) have already been announced time and again, some sops for the other two (women and youth) could be announced with minimal impact on the deficit.

Read here: Budget 2024: What should your investment strategy be?

Traditionally infra, materials, finance, FMCG, rail, and defence are some sectors that carry expectations ahead of the Budget. But this time as no major policy announcements are expected, only a limited buildup may happen in these. Nifty Realty index has run up quite sharply over the last few months and hence may not perform post the Budget. Energy may also not see any major policy changes, but as valuation favors this sector, it may perform a little around Budget time.

Jyoti Roy, Head of Equity Research, Sanctum Wealth, also favours the Energy sector over Realty.

There has been a significant push by the government on renewables especially solar and wind energy, resulting in a significant increase in the share of renewable energy in the overall energy pie. We expect that the Budget 2024 will continue to focus on increasing the share of green energy as the government plans to increase the share of green energy from 180GW at the end of Nov 2023 to 500 GW by 2030. Hence, we believe that the power sector should continue to outperform in the run-up to the Budget. The real estate (RE) sector has been a significant outperformer over the past one year as the sector appears to have turned the corner post a decade of pain. The sector is witnessing favorable demand conditions and is also seeing the pricing environment improving. Most real estate companies have suggested that their launch pipelines are strong and the confidence level among investors is improving. The commercial RE is benefiting from robust business activity.

Read here: Budget 2024: ICRA predicts these changes for markets, mutual funds and taxation

We expect strong demand momentum for the real estate sector to continue though post the recent surge, some consolidation cannot be ruled out in the sector. While both sectors are expected to do well in the medium to long run the energy sector may outperform realty in the run-up to the Union Budget given the government’s thrust on increasing share of renewable in India’s energy pie which will be positive for the energy sector.

Harinder Sahu, Sebi-registered Research Analyst at King Research Academy, also likes Nifty Energy over the Realty space.

I will choose energy over realty. Last month, there has been a good performance in energy. Both energy and realty are good stocks to buy. The government might also announce some packages.

On the contrary, Atul Parakh, CEO, Bigul, prefers Nifty Realty over the Energy space for this Budget.

Nifty Realty has high potential as the Budget may announce infrastructure spending, affordable housing push, and tax benefits for homebuyers, thereby boosting demand. Companies exposed to affordable housing and government initiatives could react positively. However, indications of interest rate hikes and inflation worries could dampen the sentiment. Nifty Energy has moderate potential as global energy prices remain volatile, and the Budget impact on domestic prices is unclear. Renewable energy generation and equipment manufacturing companies can be tracked. Geopolitical tensions and potential subsidy cuts could hurt investor sentiment.

Read here: Interim Budget 2024: Here's real estate industry stakeholders' wish list

In summary, opinions vary on whether to favor Nifty Energy or Nifty Realty in light of the Budget, with considerations ranging from government policies to sector-specific performance and potential announcements.

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 taking any investment decision.

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