Stock market indices Sensex and Nifty jumped over 1 per cent each in a pre-Budget rally on Monday, as investors hope the Modi government to walk on the fiscal consolidation path while keeping the capex spending intact in Thursday's 'vote on account' Budget. Two of every three listed stocks on BSE climbed, with Sensex rising over 800 points in trade today. Nifty zipped past 21,600 level in the first session of monthly futures and options contracts.
"Given the priority that is likely to be given for fiscal consolidation in the upcoming Budget, we don’t expect any significant fiscal stimulus in it. However, the government may continue to earmark a significant quantum for capital expenditure with a growth of 15 per cent in its budgetary allocation; the latter will continue to be a primary driver of the domestic economy over the medium term," said Suman Chowdhury, Chief Economist and Head-Research Acuité Ratings & Research.
Chowdhury said the government may enhance the subsidy allocation for some segments such as farmers, women, informal sector workers and unemployed youth to strengthen domestic private consumption which is estimated to show a weak growth of 4.4 per cent in FY24.
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"Given the need to sustain the public investments and also support certain social segments through subsidies or budgetary relief, the targeted reduction of fiscal deficit from 5.9% to 5.3% (E) will pose a material challenge for the finance ministry, necessitating significant step-up in non-tax revenues like PSU disinvestments," he said.
Here are Acuité Ratings' sector-wise expectations from the forthcoming Budget:
Automobile
Acuité Ratings said there is a likelihood that the government may introduce the third phase of the FAME scheme to incentivise the purchase of electric vehicles. The earlier versions of the scheme have already lapsed, it said. However, there is a need to promote the development of charging infrastructure for EVs in the urban areas; weak charging infrastructure can be an impediment to the growth of EVs particularly in the PV and CV segment, the ratings agency said.
Infrastructure
The government will continue to enhance the allocation for infrastructure particularly roads, highways, railways, public transportation and airports, Acuité Ratings said. The total capital expenditure is likely to witness a growth of 15 per cent in FY25. The government may also propose new measures to attract private sector and foreign funding into the infrastructure sector, the rating agency said.
Tourism & Hospitality
The tourism and hospitality sector has significant growth prospects in the near term driven by higher demand from the domestic travellers. Religious tourism will be a major driver of growth in this sector, Acuité Ratings said. Some fresh measures may be announced to develop tourism infrastructure particularly in the religious centres, it said.
Steel
Steel industry has seen a strong growth in output in the current year with the infrastructure push by the government. However, there are reports of dumping of certain grades of steel including stainless steel which has impacted the domestic players, Acuité Ratings said. The government may announce some measures to support the domestic manufacturers of stainless steel and other grades impacted by cheap imports, it said.
Agriculture
The agricultural sector is expected to record a modest growth of 1.8 per cent in FY24 and even the growth prospects of FY25 is not certain given the continuing impact of the El Nino phenomenon. Significant deficiency has been reported in the winter rains which can have some impact on the rabi crop. Acuité Ratings expects some higher allocation for the existing budgetary programmes for farmers.
MSMEs
While the government has undertaken several measures for the MSME sector in the last five years including the implementation of the ECLGS scheme after the Covid stress, the challenges on access to finance remain. The government may consider some additional financing measures for MSMEs to strengthen their working capital position and enable them to upgrade their technology that will improve their competitiveness in the export markets, Acuité Ratings said.