Emkay Global called the Union Budget 2024 'solid', with policy continuity as the keystone. The fiscal consolidation path was maintained and the focus on capex over revex continued, it said adding that a small hike in capital gains tax was not material. Emkay felt direct incentives for employment was a big measure, though it finds it difficult to scope the impact so early.
The domestic brokearge has maintained its overall stance: "The stock market is vulnerable at these valuations and could correct in the short term. Our favored sectors are FMCG, IT and consumer durables, and we are negative on industrials and financials," it said.
Emkay Global said it remains cautious on the market, as a good Budget is in the price and unlikely to move the needle significantly.
"On the other hand, we are looking at a tepid earnings season, as topline growth remains moderate and margin tailwinds are petering out. Also, rate cuts are at least 1-2 quarters away. On the other hand, valuations are stretched at 21.4 (1-year forward P/E of Nifty), with no imminent upgrades," it said.
The increase in LTCG and STCG has been marginal and Emkay does not see it as a major worry. The tax on buyback could adversely affect payouts and, at the margin, hurt return ratios and valuations of some high-cash generators, it said.
The increase in STT on derivatives is also relatively minor, Emkay said.
"Overall, the increase in taxes on capital markets has not been severe and is unlikely to affect market valuations materially," it said.
Emkay said the Budget was positive for consumption. The two (minor) changes in approach are both positive. One, that the direct stimulus to employment, especially the one to employers, should help stimulate hiring at the margin. Retail, NBFCs, and MFIs in growth mode could see some benefits too, it said,
"The other is that half the windfall gain from the RBI dividend was diverted to revex, with transfers to states the most prominent expenditure head. We see both as positive, and address the K-shaped post-Covid recovery. Our positive stance on FMCG and two-wheelers is reinforced by these moves," it said.
Overall, the incremental impact of the Budget has been marginal in most cases.
The two clear positives were for i) the jewellery sector, which benefits from the cut in gold import duties, and ii) battery players, who gain from lower import duties on critical metals. There were marginal positives for cement and building material players, due to continued stimulus to housing from PMAY Urban 2.0 and a focus on highways and city development, Emkay Global said.
"Capital market participants were hit by the CGT and STT, but the impact is negligible. There was a relief rally in some stocks, as there were expectations of more severe measures, especially on derivatives trading," it said.