Nirmal Bang Institutional Equities in its Union Budget 2025 preview note anticipated only a moderate growth in capex and a limited boost to consumption, as the focus of Finance Minister Nirmala Sitharaman may stay on the fiscal consolidation path. Affordable housing would be in focus, the domestic brokerage said, adding that there could be a greater emphasis on creating the missing middle-urban jobs.
"We are likely to see continued emphasis on the ‘missing middle’ with focus on sectors like skill development and affordable housing. A scheme for urban job creation along the lines of the MGNREGS apart from the direct benefits will help support urban wage growth across sectors. Increased allocation under PM Awas Yojana for affordable housing, and increase in tax exemption limits on interest payments on housing loans are possibilities," Nirmal Bang said.
The domestic brokearge said that the thrust on domestic manufacturing will likely sustain through expansion of the scope of the Production Linked Incentive (PLI) Scheme, indigenisation of defence and increased investment in research and development (R&D). The push towards green transition will remain with some rebalancing towards fossil fuel based technologies. Within infrastructure, new sectors like shipbuilding may see impetus, the brokearge added.
"We believe the broad focus on capex will stay, but growth will moderate. In FY25YTD, spending on roads, defence and telecom is under pressure while Railways is largely flat. Given limited project awards particularly by the National Highways Authority of India (NHAI), over the past two years, it is difficult to envisage a material pick up in spending on Roads," Nirmal Bang said.
Budget 2025 income tax cuts
Nirmal Bang said it sees limited room for a significant cut in income taxes, apart from tweaking the lowest tax slabs. Increasing the income tax exemption limit from Rs 3,00,000 to Rs 5,00,000 under the new tax regime (5 per cent tax up to Rs 7,00,000) would lead to tax revenue loss of Rs 50,000 crore according to its estimates.
"Consequently, apart from marginal tweaks in the tax bracket under the new tax regime, there is limited room for tax cuts. This is now all the more pertinent as income taxes have surpassed corporate taxes and continue to lead growth. Income taxes are up 23.5 per cent YoY FY25YTD while corporate taxes are down 0.5 per cent YoY although subsequent data is pointing to some recovery in corporate taxes," it said.
Budget 2025 divestment target Divestment revenue stands at Rs 8,625 crore in FY25 so far, which is quite short of the target of Rs 50,000 crore. Nirmal Bang is factoring in divestment revenue of Rs 20,000 crore in FY25 and a target of Rs 50,000 crore in FY26.
Budget 2025 sectoral expectations For the auto segment, there are expectations of simplification of GST classification to bring in consistencies in automobiles and auto components. Investors are eyeing reduction of GST on EVs, CNG and Hybird vehicles. Also the industry has a demand of reducing GST on two-wheelers.
Nirmal Bang expects policies to incentivise EV infrastructures and domestic manufacturing of batteries and increase in incentives for export of auto components.
For banking and real estate, Nirmal Bang expects the government to increase its budgetary allocations under the Pradhan Mantri Awas Yojana (PMAY) scheme, upwards from Rs 84,670 crore as per FY25 budget estimates.
"The deduction limit of home loan interest can be raised from Rs 2 lakh to Rs 5 lakh. There can also be an expansion in the definition of affordable housing which would expand the benefits for homebuyers and hence boost end-user demand," it said.
For PSU banks, it expects the government to provide some clarity. It also expects to get some guidance on divestment of the government stake in IDBI Bank.
"For life insurers, the Budget could bring in some reforms in taxation with a separate tax deduction limit for term insurance (apart from 80C benefit), higher deduction limits under Section 80D, revisiting the taxation structure for pension and annuity products and lowering of GST on insurance products," it said.
While Nirmal Bang does not expect any increase in taxation on cigarettes as volume growth remains subdued for industry, this remains a key monitorable as any increase in taxation would lead to lower volumes for cigarette players and can increase sales of illicit cigarettes.