Union Budget 2024: 3 things that could lift stock market mood on July 23
Budget 2024: As fiscal deficit is one of the key metrics tracked by FPIs and global rating agencies to assess a sovereign, any guidance by the government of a lower-than-targeted fiscal deficit could be positive.
- Jul 18, 2024,
- Updated Jul 18, 2024 7:50 AM IST
Budget 2024: A focus on fiscal consolidation, higher capex allocation, increased spending on social and rural schemes along with possible relaxation of income tax rates for those in the lowest income tax bracket means the Union Budget 2024 could have something for everyone, Elara Securities said in its strategy note. The domestic brokerage said that Modi 3.0 pulling off the competing budgetary goals of higher growth and larger income support to farmers and other needy sections of society without compromising on its fiscal deficit target is already priced in by the market. "As such, unless budget grossly disappoints by hiking capital gains tax rate or surprises on bold reforms, we think the narrative of the market will be decided by the earnings growth hereon," it said. The brokerage said the government will need to focus on three themes to lift the mood of the market:Fiscal consolidation The market’s confidence hinges on the government’s ability to balance growth and fiscal discipline, it said. As fiscal deficit is one of the key metrics tracked by FPIs and global rating agencies to assess a sovereign, any guidance by the government of a lower-than-targeted fiscal deficit could be positive amid the debt inflows due to inclusion in global bond indices. "Commitment to fiscal glide path through FY26 could be credit rating positive. Given the rate cut cycle is also around the corner, rate-sensitive sectors, such as autos, banks, IT and pharma, are set to benefit," Elara said.Consumption boost Elara said India’s post pandemic recovery has been uneven and unequal, with aggregate figures masking the underlying disparities. The rebound has been largely fueled by urban consumption while the rural economy has lagged, particularly after the Second Wave of Covid-19. "This divergence has resulted in a lopsided recovery, with rural demand remaining subdued compared to urban areas. The K-shaped recovery has kept entry level demand weak even as luxury segments have grown well. For instance, two-wheeler sales as a percentage of total domestic sales has yet to revert to pre-pandemic levels. Measures to bolster rural income, wages and consumption would initially drive-up sales for retail and small-ticket white good companies with follow-on impact on FMCG in the later stages," Elara said.Capex spending Elara believes the Budget is set to prioritise capital expenditure in key sectors, such as railways, power, housing, and defense. With an expected allocation increase to Rs 11.5 lakh crore, focus will be on infrastructure development especially in power, renewable energy, railways and housing. The continued emphasis on Atmanirbhar Bharat would support domestic industries through customs duty rationalization in sectors, such as electronics, it said. "Markets are likely to respond favorably to targeted spending that drives growth in these critical sectors. While we continue to like aerospace & defense and capital goods, significant froth and high valuation suggest limited upside," it said.
Budget 2024: A focus on fiscal consolidation, higher capex allocation, increased spending on social and rural schemes along with possible relaxation of income tax rates for those in the lowest income tax bracket means the Union Budget 2024 could have something for everyone, Elara Securities said in its strategy note. The domestic brokerage said that Modi 3.0 pulling off the competing budgetary goals of higher growth and larger income support to farmers and other needy sections of society without compromising on its fiscal deficit target is already priced in by the market. "As such, unless budget grossly disappoints by hiking capital gains tax rate or surprises on bold reforms, we think the narrative of the market will be decided by the earnings growth hereon," it said. The brokerage said the government will need to focus on three themes to lift the mood of the market:Fiscal consolidation The market’s confidence hinges on the government’s ability to balance growth and fiscal discipline, it said. As fiscal deficit is one of the key metrics tracked by FPIs and global rating agencies to assess a sovereign, any guidance by the government of a lower-than-targeted fiscal deficit could be positive amid the debt inflows due to inclusion in global bond indices. "Commitment to fiscal glide path through FY26 could be credit rating positive. Given the rate cut cycle is also around the corner, rate-sensitive sectors, such as autos, banks, IT and pharma, are set to benefit," Elara said.Consumption boost Elara said India’s post pandemic recovery has been uneven and unequal, with aggregate figures masking the underlying disparities. The rebound has been largely fueled by urban consumption while the rural economy has lagged, particularly after the Second Wave of Covid-19. "This divergence has resulted in a lopsided recovery, with rural demand remaining subdued compared to urban areas. The K-shaped recovery has kept entry level demand weak even as luxury segments have grown well. For instance, two-wheeler sales as a percentage of total domestic sales has yet to revert to pre-pandemic levels. Measures to bolster rural income, wages and consumption would initially drive-up sales for retail and small-ticket white good companies with follow-on impact on FMCG in the later stages," Elara said.Capex spending Elara believes the Budget is set to prioritise capital expenditure in key sectors, such as railways, power, housing, and defense. With an expected allocation increase to Rs 11.5 lakh crore, focus will be on infrastructure development especially in power, renewable energy, railways and housing. The continued emphasis on Atmanirbhar Bharat would support domestic industries through customs duty rationalization in sectors, such as electronics, it said. "Markets are likely to respond favorably to targeted spending that drives growth in these critical sectors. While we continue to like aerospace & defense and capital goods, significant froth and high valuation suggest limited upside," it said.