Daily Voice: Private capital expenditure expected to be key focus area in Budget 2025, says this investment advisor

Narinder Wadhwa is the Managing Director & CEO of SKI Capital

"Private capital expenditure is expected to be a key focus area in this year's budget," said Narinder Wadhwa, the Managing Director & CEO of SKI Capital in an interview to Moneycontrol.

According to him, the government could introduce measures like expanding the production-linked incentive (PLI) schemes to new sectors like chemicals, green energy, and textiles, encouraging manufacturing in these areas. There might also be tax incentives for industries that invest in technology or set up operations in underserved regions, he said.

While 2025 may be a consolidation year, he does not expect widespread downgrades of earnings growth estimates post Q3FY25. Overall, earnings growth likely remains flat or modest during the first half of the year 2025, said the senior Chartered Accountant.

Do you see the government focusing on boosting consumption or economic expansion in the union budget? What could be the priority?

The government is most likely to focus on both consumption boost as well as economic expansion in the union budget. With worries related to subdued demand, we expect the government to bring in measures that boost consumption. This may include higher allocations for strategic sectors, such as easier credit availability, tax rebates, and subsidies for MSMEs and startups.

There will also be significant outlays on infrastructure projects, including roads, railways, and housing, which will generate employment and stimulate economic activity. We may also see an extension of welfare programs like MGNREGA or direct cash transfers to boost rural demand. On top of that, reforms for the middle class, such as restructuring income tax, could give disposable incomes a much-needed boost, ultimately encouraging consumption.

Will the government take additional steps in the budget to boost private capital expenditure?

Yes, private capital expenditure is expected to be a key focus in this year's budget. The government could introduce measures like expanding the Production-Linked Incentive (PLI) schemes to new sectors like chemicals, green energy, and textiles, encouraging manufacturing in these areas. There might also be tax incentives for industries that invest in technology or set up operations in underserved regions. Public-Private Partnerships (PPP) could be promoted to fund infrastructure projects, particularly in renewable energy and logistics. These steps are all geared towards attracting private investment, inducing industrial growth, and generating employment.

Do you think the equity market will stabilize post the Union Budget?

Yes, we believe the equity market will stabilise post the Union Budget. Pro-growth measures such as increased fiscal spending on infrastructure and investor-friendly policies will be expected to boost overall sentiment in the market. Although we expect some consolidation, more so in the first half of the year, we should see stabilisation by the latter half, especially when the government's efforts to address demand and growth concerns start to kick in. More clarity on taxation and a focus on FDI growth will also reduce uncertainty and support long-term investor confidence.

Do you see some significant opportunity for earnings growth estimates to be marked down? Would that be  sector-wide or more likely selective in terms of sectors?

While 2025 may be a consolidation year, we do not expect widespread downgrades of earnings growth estimates. Overall, growth likely remains flat or modest during the first half of the year, with some sectors less affected than others. Banking and financial services sectors will benefit from credit growth and improved NPAs. Infrastructure and construction should do well with government expenditure driving activity. Sectors like health and pharmaceuticals will continue to see global demand for innovative products. IT and exports could face some headwinds globally but should rebound in later parts of the year.

Most analysts believe that Trump's policies are more inflationary than Obama's. Do you view inflation as a risk with the concentration on energy in his inauguration speech?

Inflation is a universal concern and could be further prodded upwards in some sectors with the policies of Trump. A return to aggressive tariffs would disrupt global supply chains, raising input costs and propelling inflation higher. On the other hand, the emphasis of Trump on increasing U.S. oil and gas production—the topic he spoke about in his inauguration speech—could bring down energy prices both domestically and internationally, which may balance out the inflationary effects of tariffs. More US energy production could flood the global market, bringing down crude prices. That would be beneficial to energy-importing countries like India but might create problems for energy-exporting nations and slow the shift toward renewables worldwide.

Do you think a repo rate cut will be more likely in February, rather than April?

Yes, I believe the probability of getting a repo rate cut is very high. Probably, for several reasons, including weak domestic demand, it will actually help to revive consumer spending and investment with a repo rate cut. The RBI, thus, has an opportunity to reduce interest rates too since the majority of central banks globally have gone dovish. In the event of maintaining inflation within the RBI's target, a pre-scheduled rate cut may provide much-needed impetus to the economy in its revival phase. The cut will benefit especially interest-sensitive industries such as real estate, automobiles, and capital goods and help boost private capital expenditure.