Union Budget 2024 | Jefferies says capex growth to slow down, will disappoint market

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26 Aug, 2025 12:21

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Broking firm Jefferies expects a slowdown in government capex growth, possibly below 10 percent, in the upcoming Budget due to fiscal consolidation. This could disappoint the market, leading to corrections in stocks exposed to government's capex programmes, it said in a pre-Budget note.

Finance minister Nirmala Sitharaman is expected to present an interim budget on February 1, with Lok Sabha elections due in April-May. A full budget will be presented in July.

In Budget 2023, government capex saw an uptick of over 33 percent to Rs 10 lakh crore. For this year, the market is expecting an increase of anywhere between 15 and 20 percent but Jefferies believes that the number could be just about 7-8 percent.

"Stocks exposed to the government capex program may see some correction. We recently cut L&T to neutral in our model portfolio," Jefferies' Mahesh Nandurkar and Abhinav Sinha said.

Also Read: Union Budget 2024 | Market seeks higher capex, boost to rural demand, relief in cap gains tax

Despite this, Jefferies suggests that the slowdown in government capex may be offset by a sustained housing upturn and private sector capex.

Welfare spending and fiscal deficit

Anticipating a boost in welfare spending, Jefferies highlighted the significance of direct benefit transfer and welfare schemes in recent state elections like the widely popular Ladli Behna plan in Madhya Pradesh.

The firm expects the government's social spending, excluding subsidies, will rise by approximately 7-8 percent in FY25, compared to a 4 percent increase in FY24.

By increasing social expenditure but decreasing capex growth, the government will try to contain fiscal deficit at 4.5 percent of the GDP by FY26.

"We estimate FY25E fiscal deficit target at 5.2 percent of GDP. Assuming the tax revenue growth at ~12.5 percent, the total expenditure growth would have to be limited to ~7-8 percent," Jefferies said.

Also Read: One-third of India's wealth coming from stock markets, says NSE's Ashish Chauhan

Unlike most analysts on D-Street, who are dismissing this exercise as simply a 'Vote of Account' Budget, Jefferies thinks the the February budget is equally significant.

It cited that the FY20 Budget, presented after the national elections in July 2019, saw only minor adjustment to the Interim Budget presented in February 2019.

"The major announcements of 2019 viz. the welfare scheme for farmers (income transfer of Rs 75,000 crore) was announced in the interim budget itself. We expect a continuation of the precedent for the 1st Feb24 budget," Jefferies said.

It expects measures such as higher capital gains tax and an increase in disinvestment once the elections are over.

Also Read: Understanding the Union Budget 2024: A beginner’s guide

"Disinvestment may also get ramped up post elections, partly as the government capitalises on the sharp run in PSU stocks in sectors such as railways, defence etc," it said.

Stocks to watch

Any significant boost to rural infra or welfare schemes (housing-for-all, village roads, income transfers)  will be positive for cement and rural recovery themes like telecom (Bharti Airtel), 2Ws (TVS Motor, Hero Motocorp) and Ultratech.

-Renewed interest in subvention scheme for affordable/mid-income housing likely. Positive for select developers (Lodha, Sunteck) and HFCs (Aavas, Home First)

-Potential hike in FPI limit in banks/insurance companies to 100 percent  from 74 percent and PSU banks (20 percent FPI cap to facilitate IDBI privatisation)

-Tobacco taxation changes (ITC) unlikely in the interim, July one more important

-Divestment (via stake sale) target - defence and rail PSUs

-Privatisation candidates include Concor, BEML, IDBI, SCI

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