Nimesh Chandan, CIO, Bajaj Finserv MF says these 4 sectors would benefit the most from Interim Budget 2024

Nimesh Chandan_CIO_Bajaj Finserv Asset Management Ltd

This was always meant to be an Interim Budget. It is a normal parliamentary policy that during the election year, the finance minister will present the interim budget and leave the full budget exercise for the new government which will come in a few months. However, markets do expect some kind of signalling from the government by way of some guidance. This budget did just that.

The budget presented by Finance Minister Nirmala Sitharaman displayed confidence, continuation and communication of a vision. The confidence was evident from the fact that there were no short-term populist measures to please the masses. Often, such measures put an extra burden on the fisc and lead to disappointment in the markets. Indirectly, the government displayed confidence in getting re-elected in the upcoming elections.

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Most of the policies were in continuation of the path that the government has been highlighting in the past budgets, specially the last two budgets. The finance minister reiterated the focus on GDP – Governance, Development and Performance. For those who remember the 2014 election campaign, this was the message highlighted by Prime Minister Narendra Modi even at that time.

And the communication of the vision was revealed under “Viksit Bharat”. It is a vision of a developed and prosperous India; one with modern infrastructure and growth opportunities for all citizens. India is doing much better than the peer countries in terms of economic growth and macro stability, and is on its way to become a developed nation in the coming two decades.

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The announcement of the budget numbers was cheered by market participants. The fiscal deficit number was a positive surprise. While the fixed income markets were expecting a fiscal deficit of 5.3-5.4 percent, the proposed fiscal deficit for the coming year is targeted at 5.1 percent. This resulted in the government borrowing number also lower than market expectations. This triggered a rally in Government Security prices and the yields on the 10-year paper declined by 7 basis points. When we combine this with the international bond index inclusion for Indian securities, it becomes a huge positive for cost of capital in the country.

The budget math also looks quite conservative, tax revenue growth of 11.5 percent in FY25 looks reasonable; non-capex expenditure growth is planned to grow lower than last three years; and capital expenditure is planned to grow at 11.1 percent to more than Rs 11 lakh crore. Disinvestment target of Rs 50,000 crore may require some large ticket transactions.

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In terms of sectors, rate sensitive sectors such as financials will benefits from the budget announcements and the resultant fall in yields. Housing is likely to do well with government focussed on rural as well middle income housing. Some scheme details are likely to be shared in the coming days about middle income housing. Continuing focus on capital expenditure is positive news for the infrastructure and engineering sectors. some changes have been made in the FAME subsidy for Electric Vehicles; however there is an increase in the PLI schemes of the automobile sector. Hence for the Auto sector, the budget was neutral. As expected there were no changes in the direct taxation which is in line with what the Finance Minister has been hinting in her interviews.

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Fixed income markets have reacted very positively to the budget as expected. The equity markets have been neutral mainly because there are not many significant announcements for the broad market. Overall, its been a balanced budget with many positive messages. The Modi government has implemented many economic changes in the past 10 years, which have impacted the economy positively. Now, the focus is to move the country to the next level and reach the status of a developed country. The full budget after the new government formation is unlikely to deviate much from the announcements made today. We will possibly get some detailed plans of the government for the next five years. Indian economy is on a strong footing with good macro stability, corporate earnings stability, good household balance sheets and healthy banking system. For fixed income as well as equity markets, the significant risks can possibly come externally from international markets or geopolitical developments.

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