Gautam Duggad, Head of Research for Institutional Equities at MOFSL, rated the Union Budget a 9 out of 10. He cited the continuation of fiscal policy, a sustained focus on infrastructure, additional support to states for ground-level work (including infrastructure), and a credible fiscal deficit consolidation path as the primary reasons for his high rating.
However, he deducted one point due to the budget missing an opportunity to support consumption growth.
Following the budget, Duggad, who has over 16 years of experience in fundamental equity research, stated, "We don’t see any major changes to the portfolio and continue to remain positive on Industrials and Capex, Consumer Discretionary, Real Estate, and PSU Banks."
What Does the Budget Mean for India Inc.?
The Union Budget 2024-25 focuses on infrastructure, fiscal consolidation, job creation, MSMEs, women, and agricultural support. The government has once again avoided populism, continuing its emphasis on fiscal consolidation and a capex push. Despite the much-talked-about hikes in LTCG (Long Term Capital Gains)/STCG (Short Term Capital Gains) tax rates and the increase in STT (Securities Transaction Tax) on F&O transactions, these changes are expected to have minimal impact on cash equity and F&O trading volumes.
The removal of indexation benefits for capital gains in real estate appears negative. However, we believe this change will not significantly affect primary housing demand, as more than half of the demand is driven by upgrade, and 20-30 percent by first-time homebuyers. The budget also had selectively positive impacts on Consumers (rural development, employment generation, custom duty cuts on gold and silver), Utilities (boost to power generation), and Specialty Chemicals (increase in BCD for certain minerals).
We anticipate the market to quickly discount the budget and shift its focus to the trajectory of corporate earnings growth, which has so far remained marginally below our expectations in Q1FY25. We continue to expect 15%+ earnings growth for Nifty over FY24-26. Nifty's Valuations align with its LPA (long-period average) at 20.4x one-year forward earnings.
What is your rating for the budget out of 10 and why?
9 out of 10. Four reasons: 1) Continuation of fiscal policy, 2) continued focus on infrastructure, 3) further support to states to allow ground-level work (including infra), 4) fiscal deficit consolidation path intact and very credible now. 1 mark is cut for missing out an opportunity to support consumption growth.
Where do you want to put your money especially after the budget?
We don’t see any major changes based on the budget and continue to remain positive on Industrials and Capex, Consumer Discretionary, Real Estate, and PSU Banks. We remain OW (overweight) on PSU Banks, Consumption, Industrials, and Real Estate. We recently raised IT to marginal OW from UW (underweight) and cut Auto from OW to UW. We also turned OW on Healthcare from Neutral, while maintaining UW on Private Banks and Energy in our recently released Q1FY25 earnings preview in July 2024.
Is it (LTCG, STCG, STT increase) a big concern for investors and equity markets?
Its certainly been a dampener as it was not in the expectations. STT has been increased in the past as well but volumes have continued to rise unabated. The quantum of STT increase in F&O is not material enough for volumes to get impacted. Post-tax returns of equities will still beat other competitive products by a wide margin and hence we believe the impact will not be material.
Can the budget give more boost to the financial services sector?
The Union Budget 2024 was broadly neutral for the banking sector, with the government clearly emphasizing credit availability for MSMEs. The government proposed measures to ensure credit availability to MSMEs in the SMA category for reasons beyond their control and suggested that PSBs develop in-house capabilities to assess MSMEs for credit disbursement. While there were changes in capital gains and minor adjustments to other taxes, the government did not reduce the tax rate on term deposits, which could have helped banks increase deposit growth—a current challenge for the banking system. Nevertheless, we maintain a positive outlook on the sector, supported by strong balance sheets and healthy profitability.
Do you expect the higher chance of sovereign rating upgrade in future after budget?
We definitely hope so. India’s handling of macro crises in the recent past has been exemplary. Indian economy has come out with flying colours from the pandemic. Not only we didn’t face as much high inflation as most other major world economies, but our fiscal deficit consolidation (central or combined with states) in the last 2-3 years has also been very remarkable with no adverse impact on growth. Even in an election year government had presented a budget without any populist measures, further bolstering India’s credentials on fiscal front.
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