 "Sanjeev Hota, Vice President & Head of Research at Sharekhan by BNP Paribas")
Budget 2025 Analysis: The Union Budget for 2025-26 leans more positive than negative, with a strong focus on boosting consumption through Rs 1 trillion in income tax benefits. On the other hand, the budgeted estimate for capex for financial year 2025-26 (FY26BE) is set at Rs 11.2 trillion (up 10 per cent year-on-year versus the revised estimate of Rs 10.2 trillion in FY25).
While the stock market reaction is slightly muted, the numbers align broadly with expectations. Having driven capex growth over the past four years, the government now expects private investments to take the lead, supported by incentives for manufacturing and a push for Public-Private Partnerships. Notably, there are no changes to capital gains taxes.
Importantly, fiscal numbers are tad better-than-expectations with 4.4 per cent fiscal deficit target for FY26 vs 4.5 per cent earlier. Net market borrowings for FY26, Rs 11.54 trillion. Overall, these numbers look good for yields, which are expected to go down, while they are positive for rate sensitive sectors. Further, macro assumptions for FY26 look realistic, with nominal growth in gross domestic product (GDP) projected at 10.5 per cent for next fiscal, supported by around 10-per cent growth in corporate tax and 14-per cent growth in income tax and total revenues expenditure growth at 6.7 per cent.
The biggest beneficiary sector for the budget would be consumptions sectors like Staples, QSRs, White goods and Discretionary like Hotels and tourism.
Biggest losers, on the other hand, will be capex and infra including defence companies, owing to moderation in capex outlay.
As a portfolio strategy, we believe increasing weight on consumption plays along with rate sensitive sectors and some reduction in capex and infra exposure will be a better strategy post the Budget outcome. Overall, we retain our view that the year 2025 would be marked with correction in broader markets (midcap and smallcap stocks) and sector rotation in the favour of information technology (IT) Services, pharmaceuticals, FMCG, and some select banks.
Overall, we view Budget 2025 as overall positive for India's structural growth story and boosting domestic consumptions will add to the narrative. Further, a tight fiscal programme with managing growth would eventually trigger rating upgrade for India, which is long overdue.
The Government has done their part with a balanced budget and pro-growth policies intent. Now the baton is passed to Reserve Bank of India (RBI) to cut the interest rates and provide fillip to the growth. Disclaimer: Sanjeev Hota is Head of Research at Mirae Asset Sharekhan. Views expressed are his own.
