What Should Investors Expect from Budget 2024?

It's that time of year again. The budget session of parliament will begin tomorrow, 31 January. The economic survey has been presented. And now, all eyes will turn to the finance minister who will present the Union Budget.

This time around we haven't seen the kind of frenzied anticipation from the markets. The budget speech is an important annual event but this budget will be an interim one due to the general elections to be held in a couple of months. This explains the lack of the usual market buzz.

However, even an interim budget has an impact on the market and the economy. Thus, traders in the market don't ignore the possibility of making quick profits on budget day.

But what about investors? Can you look forward to some announcement or other that may give a boost to the stocks in your portfolio?

Let's examine this...

The Big Expectation

First of all, this is an interim budget. The full budget will be presented in July after the general elections in April-May. Thus, the market does not expect any 'big bang' announcements.

This means the big expectation from this budget will be that of fiscal discipline. In other words, the government will choose to refrain from a big increase in spending.

Now overall spending will still go up year on year, of course. But it probably won't increase at nearly the same rate as it has in recent years. This is for two reasons.

First, there is no need for any more economic stimulus as the economy is growing very well. India has already regained its title of the world's fastest growing large economy.

And second, the government has already committed to bring down the fiscal deficit, i.e. the difference between what it earns and what it spends.

So, the big expectation this time is the government will reduce the fiscal deficit by around 0.5% of GDP.

This would be bullish for both the rupee as well as the bond market.

A stable rupee will bring relief for importers, especially oil marketing companies. A bullish bond market is positive for banks because their bold portfolios should appreciate in value. This would provide some respite to top banking stocks that have under pressure recently.

Sectors that Could Benefit

If we think about the government's priorities, the major capital commitments should not come as a surprise in this budget.

There will probably be major allocations towards all kinds of infrastructure projects, defence procurements, and manufacturing incentives.

Now, these are all ongoing commitments of the government and should not impact the market too much. But there could be certain stocks that are impacted more than others within these themes.

For example, if the finance minister were to mention that the government will clear the funds for a second indigenous aircraft carrier for the Indian Navy, then the stock of Cochin Shipyard will go up.

If the finance minister were to set an aggressive deadline for the completion of the pan-India piped and metered water supply to every home and commercial establishment, then pipe and water management stocks will rise.

Manufacturing is another sector to watch out for. The government is committed to increase the share of manufacturing as a percentage of GDP. So, it's unlikely that it will step off the gas just because this is an interim budget.

There could be announcements related to the following sectors: electric vehicles, semiconductors, textiles, pharmaceuticals, chemicals, and electronics. While there may not be big increases in allocation, there could still be some positive policy announcements.

For example, the auto sector wants clarity on taxation related to EV components as well as an extension of the FAME scheme.

Watch out for these stocks.

What About Other Sectors?

The government is unlikely to make any major announcements impacting those sectors that it doesn't consider as a top priority. It might wait for the full budget in July to do that.

For example, the gaming industry is asking for long-term clarity on taxes and regulations. However, this may not be covered in an interim budget.

The real estate industry wants to maintain the recent positive momentum and expects at least some positive policy announcements. However, investors should not be surprised if this does not happen.

The tourism industry is asking for incentives to boost the number for domestic and foreign travellers. This is so as to maintain the recent post covid revival in the sector.

Will the government oblige? Or will it wait for the full budget to address the needs of the tourism industry? We will find out on budget day.

Ditto for the education sector that wants the 18% GST in education services to be reduced. It would be great if this happens but don't hold your breath.

There are many industry groups who have put forward their proposals to the government hoping some of them are addressed in the budget. But the government might choose to play it safe and wait until the elections are done to make major announcements.

However, this does not mean there won't be any major announcements at all or any sector specific announcement. Last year, the government prioritised the railway sector and we have all seen the stellar run up in these stocks.

In the same way, the government might spring a surprise and allocate a large amount to a specific industry. Rest assured we will cover that decision along with its implications in detail if it happens.

Conclusion

In an interim budget, Indian governments have historically, not made major capital allocation decisions. But there is always space for certain exceptions.

Will we see something to that extent this time? For example, will India's startups get a dedicated fund to boost their prospects?

Will there be announcements concerning say, cryptos? What about the capital gains tax? Income tax slabs? Affordable housing? EVs?

We will have to wait and watch.

One thing is for sure. Equitymaster will cover the budget in detail.

Watch this space.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...