Expectations are high as Finance Minister Nirmala Sitaraman presents the Union Budget 2024 on 23rd July 2024. This is the first full budget of the coalition government since it assumed office.
In fact, budget’24 is in the limelight as this will be the first coalition budget in 10 years after the BJP failed to secure a majority in the general elections and also because it is expected to set the stage for the coming five years.
India aims to become a developed economy by 2047. To be considered a developed economy by 2047, when India will complete 100 years of independence, the Indian economy needs to grow at 7% per annum for the next few years.
The policy decisions will focus on boosting economic growth, with the budget focusing on empowering consumers to increase consumption and promoting sectors that can propel economic growth while boosting road, rail, power, and other public infrastructure. Additionally, India’s push to self-reliance in defense and allied tech may get considerable attention and allocation in the Budget 2024.
India is an agricultural country; thus, no budget is complete without announcements for the agriculture sector. The budget can focus on improving technological adoption in the agriculture sector. There can be changes to fertilizer subsidies, mentions of improved procurement schemes, etc.
Budget 2024 Market Expectations
1. Macro and Fiscal Prudence:
The government is likely to upgrade its 10.5% nominal growth forecast in the interim budget for FY25 as growth remains robust. It is unlikely that the government will deviate from the earlier fiscal deficit target of 5.1% for FY25 and eventually bring it below 4.5% by FY26.
Gross market borrowings for FY25 are expected to remain stable at around Rs. 14 lakh crores, especially after the RBI paid a record-breaking dividend of over Rs 2.1 lakh crore.
Translation of Macro and Fiscal Prudence to Policy Action:
The record-breaking RBI dividend and strong GST collections might enable the government to tweak personal income tax slabs.
There has been media chatter around tweaks to the personal tax regime as the Prime Minister has talked about his administration’s focus on raising middle-class savings and improving the quality of their lives.
Another motivator to tweak the tax would be the fact that even as the economy grew at a world-beating 8.2% in FY24, consumption has grown at half that pace. Any personal income tax cut could boost consumption in the economy and increase savings for the middle class.
There is wide media speculation that standard deductions will increase. This will benefit salaried employees. Having said that, tax slab tweaks, if any, will likely happen in the new tax regime to make it more attractive.
2. Capex Expansion
In the interim budget presented in February ’24 before the election, the Capex outlay was hiked by 11% to Rs. 11.11 lakh crores, which stands at 3.4% of GDP. The Capex budgeted for infrastructure is lower than the 30% run rate in the last three years.
The reduction implies that the private sector will have to step up to maintain the growth momentum.
Translation of Capex expansion to Policy Action:
The budget 2024 expectation is that the government will likely reemphasize capital spending and take measures to boost private sector participation.
The government’s focus on infra spending in upgrading rail infrastructure, new ports and airports, and increasing the road network and highways will likely remain unchanged.
Schemes: “GYAN” & “Energy Transition” to remain in focus
The interim budget identified GYAN as the key pillar of development.
- Garib
- Yuva
- Annadata
- Nari shakti
This is likely to continue in Budget 2024.
Translation of Scheme Announcements to Policy Action
The Budget 2024 may see more outlays for rural welfare, housing, and agriculture. For agriculture, changes can take the form of hikes in the Minimum Support Price (MSP) for various crops, hikes in fertilizer subsidies, etc. The hike to MSPs and fertilizer subsidies is all the more likely after the recent poll set-up in big states.
Top 5 sectors in limelight before Budget 2024
1. Defense Sector
Defense indigenization and boosting defense manufacturing have been core themes for India, and they are likely to continue this year as well. The indigenous defense procurement will boost defense research and manufacturing in India.
2. Infrastructure
India aims to be a developed economy by 2047, when it turns 100. Infrastructure plays a major role in supporting the country’s economic growth by generating employment and improving the general quality of life.
The Union Budget 2024 will likely focus on upgrading rail and road connectivity, developing new ports and airports, modernizing existing infrastructure, and other such initiatives. Infrastructure development and maintenance companies are expected to grow in the coming year.
3. Automobile
Speculation is rife about possible tweaks to the personal tax regime. If the speculations prove right, a reduction in personal tax will increase Indian consumers’ disposable income.
A higher disposable income will boost expenditure, benefiting automobile manufacturers in India. Additionally, EV car manufacturers might also benefit if policy announcements are made to boost EV sales.
4. Renewable energy
India aims to achieve net zero carbon emissions by 2070. This lofty goal requires a policy push to enable renewable power generation in India.
Additionally, in the energy transition space, the government has set an ambitious target of 500 GW of renewable energy by 2030. Today, India ranks fourth globally in renewable energy installed capacity. In 2023, about 13 GW of renewable energy capacity was added, taking the share of non-fossil fuel sources to 42% in the energy mix until January 2024.
The budget is expected to expand investment in energy infrastructure, focusing on green and sustainable energy sources. Companies in the renewable energy sector and those in renewable energy financing may benefit from the government’s push for clean and renewable energy.
5. Chemicals and Fertilizers
India is a large agricultural country, with more than half of the population dependent on farming for livelihood. The Interim budget also highlighted Annadata (farmers) as one of the four pillars of development. Budget 2024 is expected to have fertilizer and seed subsidy announcements and an MSP hike for various crops.
We have listed the top 5 sectors to watch to help you track market expectations from Budget 2024. We will also list the top 10 stocks the Budget 2024 announcements can impact.
Top 10 stocks that may be impacted by Budget 2024
1. L&T
Larsen & Toubro Ltd is a multinational conglomerate primarily engaged in providing engineering, procurement, and construction (EPC) solutions in key sectors such as Infrastructure, Hydrocarbon, Power, Process Industries and Defence, Information Technology, and Financial Services in domestic and international markets.
L&T will likely benefit from the government’s infrastructure boost, which may be announced in the upcoming budget.
2. Hindustan Aeronautics Ltd. (HAL)
HAL plays a strategic role in defense manufacturing as it is the only Indian fighter aircraft manufacturer and maintenance company. HAL has gained much traction since India pushed for defense self-reliance, and the defense indigenization policy is likely to continue in Budget 2024, making HAL a likely beneficiary.
3. Bharat Electronics Ltd. (BEL)
Bharat Electronics Limited is Navratna aerospace and defense electronics PSU under the Ministry of Defense. It primarily manufactures advanced electronic products for ground and aerospace applications.
BEL has seen considerable growth in the past few years as India started defense procurement nationally. This policy is likely to continue in Budget 2024, benefiting BEL further.
4. Indian Railway Finance Corporation Ltd (IRFC)
IRFC is the funding arm of the Indian Railways. IRFC borrows funds from the financial markets to finance the acquisition/creation of assets, which are leased out to the Indian Railways as finance leases. Infrastructure boost will likely be a major focus of this budget, and railway infrastructure may see some significant announcements. IRFC will likely benefit from the expansion and modernization of Rail infrastructure in India.
5. UltraTech Cement
As the name suggests, UltraTech Cement is engaged in the manufacturing and sale of cement and cement-related products primarily in India.
Infrastructure boosts of any kind will benefit cement companies. As Budget 2024 is expected to focus on boosting government and private sector infrastructure participation, cement companies such as UltraTech Cement can show considerable momentum.
6. Bajaj Auto
Bajaj Auto, the flagship company of Bajaj Group, is a two-wheeler and three-wheeler manufacturer that exports to 79 countries in Latin America, Southeast Asia, and many more. It is headquartered in Pune, India.
If the media speculation around the revision in personal tax rates comes true, the Indian middle class will have more disposable income than the year before. The increase in disposable income will boost consumption in the economy. Two-wheeler sales could see an uptick with increased disposable income, benefiting Bajaj Auto.
7. Tata Motors
Tata Motors is a leading global automobile manufacturer that offers a wide and diverse portfolio of cars, sports utility vehicles, trucks, buses, and defense vehicles.
Tata Motors’ electric vehicles are fast gaining popularity in India. As the government boost for clean energy continues, the EV segment will likely grow in the coming year. Additionally, any move, such as personal income tax rate cuts to boost consumer saving and spending, can spike automobile sales in India. Tata Motors is likely to garner a considerable share of these sales.
8. Indian Renewable Energy Development Agency Ltd (IREDA)
Clean energy has been a focus for the past few years. Indian Renewable Energy Development Agency Ltd was established to promote, develop, and commercialize new and renewable energy sources and provide financial assistance to energy efficiency and conservation projects. In June 2015, the GoI conferred the status of Mini Ratna under Category I on IREDA.
In simple words, IREDA finances renewable energy projects, and as the government incentivizes renewable energy production in India, IREDA will likely benefit.
9. NHPC
NHPC, a Mini Ratna category I public sector utility, is the Government of India’s flagship hydroelectric generation company. NHPC will likely benefit from the renewable energy push as it already has a significant presence in the renewable power generation sector.
10. UPL
UPL is primarily engaged in the business of agrochemicals, industrial chemicals, chemical intermediates, specialty chemicals, and the production and sale of field crops and vegetable seeds.
India is an agricultural country, and Budget 2024 is likely to introduce new agricultural schemes and some form of fertilizer subsidiary for farmers. Such policy measures will benefit fertilizer manufacturers such as UPL.
Conclusion
Indian Inc., Indian investors, and consumers are eyeing Budget 2024 with expectations. This will be a coalition government’s first budget in 10 years, and markets are eagerly waiting to see what it will have for the salaried class, consumers, and farmers of the nation.
