Emkay Global in its latest strategy note sees the stock market pivoting to consumption from industrials and manufacturing sectors, thanks to tax cuts in the FY26 Union Budget tax that raised net incomes by 2-7 per cent for India’s upper middle-class. The move reinforced the brokerage's thesis of a consumption recovery in the second half of FY25. Consumer discretionary is a favored route to play the theme, the domestic broking firm said.
Staples and financials may also benefit, but both sectors suffer from a fundamental growth-valuations disconnect, Emkay Global said as it adjusted its model portfolio to add weights in consumer discretionary and financials, funded by a cut in energy sector.
"The Budget does not change our overall view of the market. We stick with our December 2025 Nifty target of 25,000, based on a conservative 21.1 times trailing PE. We retain our tilt toward consumption and add to our overweight on Consumer Discretionary (CD), which is our preferred route to play the theme. Incremental growth is sharpest for these sectors and valuations are still reasonable," it said.
The brokerage has added Maruti Suzuki India Ltd and One 97 Communications Ltd (Paytm), removed ONGC Ltd; and trimmed BPCL Ltd in its model portfolio.
Our top picks for 2025 are largecaps such as Lupin Ltd, Zomato Ltd and Tata Motors Ltd. In the midcap space, it likes IndusInd Bank Ltd, Escorts Ltd and Paytm. Emkay's smallcap picks include StoveKraft, Metropolis Healthcare and Quess Corp.
The government proposes a cut in income tax incidence on incomes below Rs 25 lakh, which raises effective incomes by 2-7 per cent, assessing the total stimulus at Rs 1 lakh crore or 0.3 per cent of GDP. This by itself may not be enough to reverse the consumption slowdown but there are other positives in play too, Emkay Global said.
"Jobs are turning around, and we expect retail loan growth to bounce back in FY26, especially in the unsecured segment. Other benefits of the tax cut are that the cut, to a small extent, helps the overall credit environment: retail deposits, credit capacity, and asset quality. A key risk is the optimistic buoyancy in the implied 15 per cent YoY (BE) growth in personal income taxes," it said.