Q1 earnings, Union Budget to dictate market trend; here’s what to expect from these key developments in July

All eyes are on the forthcoming Union Budget and the quarterly results, which will give further direction to the domestic equity markets that are hovering at record-high levels. There are expectations that the Union Finance Minister Nirmala Sitharaman will table the Union Budget later in July. On the other hand, the Q1 earnings season will kick off on July 11 with IT major Tata Consultancy Services announcing its results. HCL Technologies will post its financial results on July 12. So, what can you expect from these key developments?

Union Budget
Amit Goel, Co-Founder and Chief Global Strategist, Pace 360, said, “In the upcoming 2024 Budget, several sectors are expected to benefit from new or expanded Production Linked Incentive (PLI) schemes. These sectors include advanced cell chemistry for batteries to promote domestic electric vehicle (EV) manufacturing, renewable energy equipment such as solar panels and wind turbines, technical textiles and apparels aimed at boosting exports and agricultural products and processed foods.”

Sharing his views on the infrastructure sector, Goel said the Budget is anticipated to maintain a strong emphasis on infrastructure development, particularly in roadways, highways and tunnels. A projected compound annual growth rate (CAGR) of 11.4% in capital expenditure from 2021 to 2026 underscores the government’s commitment to enhancing transportation networks and connectivity. Investors should watch stocks such as Texmaco Infra and NBCC.

He also said that capital expenditure in the railways sector is expected to increase by 76% over the next five years, reaching Rs 2.55 lakh crore. Plans include prioritising dedicated tracks for coal and mineral transportation, improving port connectivity and addressing congestion issues to bolster efficiency and capacity. Goel also believes that there is a potential for heightened defence capital expenditure aimed at meeting strategic requirements, fulfilling modernisation needs and addressing pension obligations. 
This reflects a proactive stance in bolstering national security infrastructure. One should watch stocks such as Bharat Dynamics and Bharat Electronics in the defence sector.

The market watcher also believes that the Budget may announce initiatives such as privatisation or stake sales of public sector enterprises, aiming to enhance efficiency, competitiveness and resource allocation within these entities. Goel advised investors to watch stocks such as NTPC and Canara Bank.

Vinod Nair, Head of Research, Geojit Financial Services, added that expectations are high, but there is a risk that the government may not be able to address all possibilities within the Budget. “It is likely that some measures will extend beyond the Budget into subsequent quarters. Optimism centres on growth initiatives being a key theme of government policy, driven by increased spending on rural markets and infrastructure, and the expansion of industrial norms like PLI schemes to other sectors. A direct tax benefit is also expected for middle-class tax players. Given strong tax collection and income from the RBI, the fiscal deficit target is likely to be further cut marginally,” Nair said.

Sunil Damania, Chief Investment Officer, MojoPMS, said the Budget will provide clarity on capital gains and increase infrastructure spending to support the China Plus One policy. High logistics costs are a significant issue, reducing our competitiveness, and require serious attention.
“Additionally, the government should focus on increasing disposable income for taxpayers to revive the consumption cycle, which in turn will stimulate the capital expenditure cycle. In summary, we want the government to spur both consumption and capital expenditure,” Damania said.

Q1 results
Post-Covid, corporate India has shown remarkable performance. In June 2019, the aggregate net profit of India Inc. was Rs 1.36 lakh crore, which surged to Rs 3.41 lakh crore by June 2023. However, Damania of MojoPMS believes that the figures for June 2024 may not be as impressive due to three main factors: the impact of the election on economic activity, severe heatwaves across various parts of the country reducing productivity and a higher base effect.
“We anticipate that India Inc. will report an aggregate net profit around Rs 3.4 lakh crore for June 2024, approximately the same level as the previous June,” he said.

On the other hand, Nair of Geojit Financial Services said the broad market’s positive earnings growth to persist in the coming quarter, with forecasts projecting between of 12% and 15% for FY2025. “Q1 earnings growth is expected to be slightly better than the FY25 estimate, supported by strong monthly high-frequency economic data. The RBI has also indicated that Q1 GDP growth is likely to be robust at 7.3%. The strong performance of Q4 FY24 is expected to carry into Q1 FY25, with Nifty500 earnings growth at 18% in Q4 likely to be sustained with a further positive bias in Q1,” the market watcher said.