Daily Voice: Apart from consumption-oriented themes, these 6 sectors appear to benefit from Union Budget, says Anil Rego of Right Horizons

For India’s economy to thrive, it is crucial to strike a balance between consumption and capital formation. A blend of robust consumer demand and ongoing investments in infrastructure and industry is key to sustaining long-term economic growth. The move to waive Rs 1 lakh crore in direct taxes and provide full tax exemptions for income up to Rs 12 lakh is expected to drive consumer spending, positively impacting sectors such as FMCG, automobiles, and retail.

Additionally, the allocation of Rs 11.1 lakh crore for capital expenditure underscores the government's strong commitment to infrastructure development, benefiting industries like construction, cement, and steel. With a focus on boosting domestic electronics manufacturing, expanding nuclear energy, and supporting MSMEs, the government is creating significant investment opportunities across these sectors.

Do you think the budget has presented a truly balanced approach between growth-driven initiatives and fiscal prudence?

The Union Budget for 2025-26 effectively balances growth-oriented initiatives with fiscal discipline, which is expected to significantly influence foreign institutional investor (FII) flows in the coming months. The government's continued emphasis on infrastructure development, MSME support, tax simplification, and policy reforms is likely to enhance investor confidence and attract foreign capital.

Do you foresee a drastic change in investment patterns following the significant changes in the personal income tax structure?

The significant changes in the personal income tax structure, including the introduction of a ‘nil tax’ slab up to Rs 12.00 lakh (Rs 12.75 lakh for salaried taxpayers with the standard deduction), are likely to have a positive impact on investment patterns. Here's how:

1> Increased Disposable Income
With a reduction in tax liabilities, individuals will have more disposable income. This could lead to higher savings, which are likely to be directed into systematic investment plans (SIPs) of AMCs, benefiting mutual fund inflows. This is expected to be a key advantage for AMCs as the potential rise in disposable income could stimulate more investments in their products.

2> Increased Investment in Systematic Investment Plans (SIPs)
With the rise in disposable income from tax reductions, many individuals may direct these savings into SIPs of mutual funds. Since SIPs offer a disciplined way to invest over the long term, this could increase the flow of funds into equity mutual funds and other asset classes.

3> Skepticism Around AMC Flows
The market has been skeptical about the sustainability of AMC inflows, particularly SIPs, which have shown signs of slowing down recently. However, the changes in tax slabs could help ease this concern in the short to mid-term. Lower taxes provide an incentive for investors to increase their contributions to SIPs, bolstering the earnings of AMCs.

After this, do you expect the RBI to further boost the economy by cutting interest rates in the February policy meeting?

RBI during its December monetary policy review reduced the CRR for banks by 50 basis points to 4% of Net Demand & Time Liabilities (NDTL). This move injected approximately Rs 1.16 lakh crore of primary liquidity into the banking system, providing relief amidst tight liquidity conditions and potentially enhancing banks' lending capacity.

The central bank revealed plans for open market operations (OMO) to buy government securities worth Rs 60,000 crore to provide durable liquidity. In addition, the RBI will conduct a 56-day variable rate repo (VRR) auction for RS 50,000 crore to maintain liquidity through the end of the financial year. The central bank also announced a $5 billion dollar-rupee buy-sell swap auction that is expected to inject approximately ?50,000 crore into the banking system.

Inflation is likely to remain stable as economic growth moderates, commodities soften, and food prices, gradually come under control. The government's commitment to fiscal consolidation, with reduced spending and borrowing, will further help contain inflation. Consequently, 2025 is expected to witness lower long-term yields, driven primarily by subdued growth. We expect a shallow responsive rate cut cycle in India commencing likely from last quarter of FY25.

Which sectors do you believe should remain a part of your portfolio post the Union Budget announcements?

With a promising budget that is likely to boost consumption, we are entering a growth and quality cycle and we believe consumption-oriented themes are set to attract liquidity and expected to do better going forward. Additionally, the following sectors appear to benefit.:

Domestic Pipe Manufacturers
Infrastructure spending is likely to remain a key priority, and domestic pipe manufacturers will benefit from increased demand driven by construction, water supply, and sewerage systems.

Geospatial and Drone Companies
The push for technological advancements, along with increased interest in smart cities and agricultural innovations, positions the geospatial and drone sectors for strong growth.

Metal Recycler Companies
The government proposes to scrap basic customs duties on cobalt powder, lithium, lead , and zinc waste , benefiting the sector.

Pharma Companies Importing and Exporting Drugs for Cancer and Rare Diseases
The pharma sector, particularly companies dealing with high-demand, specialized drugs such as those for cancer and rare diseases, should continue to perform well given the government proposes to fully exempt Basic Customs Duty on 36 life-saving drugs for cancer and rare diseases.

Footwear
With the growing middle-class population and increasing disposable income, the footwear sector is poised for growth. The budget may further boost consumer spending, benefiting this sector.

Battery Manufacturing Plant Companies
As the country transitions toward electric mobility and renewable energy, battery manufacturing is expected to see substantial growth, especially with the government’s support for electric vehicle (EV) infrastructure.

Do you think the market has reacted positively to the budget, given the response after the policy announcement?

The stock markets remained largely unchanged following Finance Minister’s presentation of the Union Budget 2025, reflecting a lack of significant volatility, which is being interpreted as a positive sign. A key highlight of the budget was the introduction of new income tax reforms, including full tax exemption for individuals earning up to Rs 12 lakh, which is expected to encourage consumer spending. The revised tax slabs for other income groups aim to streamline the tax process.

Additionally, incentives for sectors such as agriculture, green energy, and technology were introduced, which should help foster growth and job creation. Furthermore, the focus on economic revival through sector-specific incentives likely supports future market confidence. Lastly, the tax reforms, especially the removal of taxes for lower-income groups, may improve disposable income, indirectly benefiting consumption-driven sectors in the near term.

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