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Finance Minister Nirmala Sitharaman is expected to focus on stimulating economic growth in next month’s budget through measures
Budget Expectations
Finance Minister Nirmala Sitharaman is expected to focus on stimulating economic growth in next month’s budget through measures such as income tax cuts. However, multiple brokerages suggest that a significant increase in capital expenditure is unlikely.
Since the government’s last budget announcement on July 23, 2024, India’s benchmark indexes have fallen around 7%, driven by concerns over slowing economic growth, corporate earnings, US trade policies, and persistent foreign outflows.
The Nifty 50 and Sensex are poised to record their fourth consecutive month of losses in January, marking their longest monthly losing streak in over 23 years.
Consumption Boost
According to Citi, addressing the cyclical slowdown in the domestic economy while maintaining macroeconomic stability could be the budget’s main focus. Consumer staples and agricultural input companies are expected to benefit from higher allocations to government schemes aimed at boosting rural incomes, as well as a potential increase in income tax exemption limits, Phillip Capital noted.
Fertilizer, insurance, and healthcare sectors could also gain from higher fertilizer subsidies, capital infusion into state-owned insurers, and potential tax rate reductions on life and health insurance, the brokerage added.
Jefferies pointed out that any increase in welfare spending could positively impact cement and rural recovery stocks, with companies like Bharti Airtel, Ultratech Cement, and TVS Motor likely to benefit from such initiatives.
Meaningful Income Tax Cut
Both Citi and Jefferies highlighted that meaningful income tax cuts for individuals earning between 1 million and 2 million rupees ($11,600-$23,200) could boost demand. Jefferies further noted that tax cuts could spur consumer discretionary spending, benefiting companies like Jubilant FoodWorks, Devyani International, Trent, V-Guard, Havells, and Maruti Suzuki India.
Job CreationAxis Securities anticipates that the budget will focus on boosting job creation and supporting employment-generating sectors, which could benefit infrastructure and consumer-centric companies.
Brokerages also noted that an increased focus on job creation might positively affect sectors such as manufacturing, construction, and textiles.
PLI Boost For Electronics Manufacturers
Jefferies suggested that the success of the production-linked incentive (PLI) schemes in sectors like electronics could lead to an expansion of the program to include sub-component manufacturing. Companies such as Syrma SGS, Kaynes Tech, and Amber Enterprises could be key beneficiaries of such an expansion.
Capex Pressure On the Industrial Sector
The government may project a 10% growth in capital expenditure (capex) for fiscal year 2026, following an already slow growth of up to 6% in the current financial year, according to multiple brokerages.
Jefferies noted that justifying a capex growth of more than 10% would be challenging amid rising social spending pressures. Any shortfall in capital expenditure could negatively impact engineering, procurement, and construction contractors like Larsen & Toubro and the broader industrial sector.
