The probability of a post Budget rally will be high if the Union Budget 2025 delivers on growth stimulating initiatives like cuts in personal income tax, analysts, who are eagerly awaiting the Budget announcements scheduled tomorrow, February 1, said. The probability of major tweaks to personal income tax, though, are low.
Brokerages see limited room for a significant cut in income taxes, but expect tweaking of 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 Nirmal Bang.
"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.
Stocks to watch Ravi Singh, Senior Vice-President (Retail Research) at Religare Broking the 2025 Budget has the potential to boost consumption through various measures, including increased rural spending, tax reliefs, and job creation initiatives.
He said expected sops may include adjustments to income tax slabs to increase disposable income, expanded subsidies for agriculture and enhanced infrastructure investments
"Stocks that could benefit from these announcements include Hindustan Unilever, Maruti Suzuki, and Godrej Consumer Products, as they are well-positioned to capitalize on rising rural demand and consumer spending. However, there are concerns that the Budget may not meet expectations if fiscal constraints limit the proposed incentives," Singh said.
Manish Chowdhury, Head of Research, StoxBox said the Indian economy is showing some signs of slowdown, especially on the urban side, and that the government may tweak income tax structures and enhance tax incentives under various sections to ensure high disposable income in the hands of people.
"Also, we expect the government to prioritize growth, both urban and rural, to prop up the weakness in the economy. Some measure may include enhanced allocation to social schemes such as MNREGA and PM-KISAN along with improving the quality of expenditure which would help in creating jobs for the economy. We prefer FMCG as a sectoral play on the consumption side and Hindustan Unilever and Dabur India are poised to benefit from a medium to long term perspective."
Rajesh Cheruvu – MD and CIO at LGT Wealth India said consumption could gain a boost if rural incentives, subsidies, or tax reliefs are introduced, benefiting FMCG, retail, and auto stocks. In particular, hotels and gold consumption-related stocks like Samhi Hotels and Titan could be considered, he said.
Trivesh D, COO at Tradejini said consumption is likely to get a boost in this Budget compared to the last two years, driven by potential income tax cuts, increased welfare initiatives, and a focus on rural development.
"These measures would provide more disposable income, especially in rural and lower-income groups, stimulating higher consumer spending across sectors. If tax rates for the middle class are restructured, it would accelerate economic growth and increase tax collection," he said.
Puneet Singhania, Director at Master Trust Group said Finance Minister Nirmala Sitharaman may introduce measures in the upcoming budget for FY26 to stimulate spending. Tax incentives could play a major role such as new deductions and exemptions in both the new and old tax regimes, which tax payers are eagerly waiting, he said.
"The government is also likely to focus on encouraging private capital expenditure, offering tax benefits for affordable housing. If government meets these expectations than we can see positive momentum in consumption sector stocks," he said.
Siddharth Oberoi, Founder and Chief Investment Officer at Prudent Equity said the government has taken several positive steps to revive consumption, such as changes in tax regimes and increased exemption limits. However, the impact of these measures has not been significantly visible on the ground in the past 12 months.
"To drive tangible results, the administration will need to adopt more innovative approaches. In addition to direct reforms, focusing on incentivizing private-sector investments could also help boost consumption by stimulating economic activity," he said.
Srivastava, Founder and Fund Manager at Wright Research PMS said consumption-driven industries may face a temporary slowdown if there are fewer direct stimulus measures, but a focus on rural welfare and income-boosting schemes could offset some of this pressure. "Long-term investors in these sectors should focus on companies with strong balance sheets and resilient business models," she said.