Budget 2024 Expectations: Ideas for Investors

The Union Budget 2024 will be presented next week, on Tuesday, 23 July.

As the first budget of Modi 3.0, the list of expectations is high from all sections of society.

But what can investors in the stock market realistically expect from this budget?

We have written editorials recently about the stock market's expectations from the budget as well as the stocks and sectors that could benefit from the budget.

While this budget will not change the fortunes of the stock market as a whole in one direction or another, there could be some big moves in certain pockets of the market.

In this editorial, we will cover specific expectations that investors should keep a track of this time around. We believe that many stocks and sectors could be impacted and investors should be ready to act if necessary.

Banking and NBFC Stocks

If you have financial stocks in your portfolio, then this budget is important. The government is expected to announce a fiscal deficit target for the year. This could be the same as in the interim budget of 5.1% or it could be different.

If it's the same or the markets will be relieved that the government aims to keep spending in check despite being in a coalition. These stocks will get a short term boost.

If it's lower than 5.1%, the market will celebrate and these stocks could see significant upsides.

If it's higher than 5.1%, the market will be disappointed that spending could not be kept under control. In this case, financial stocks are likely to come under pressure.

Infrastructure and Real Estate Stocks

Last year, the big talking point was the government's massive infrastructure push. The Rs 10 trillion allocation was indeed a huge amount.

In the interim budget, this was raised by 11.1%. This pleased the market as it highlighted the government's continued infra push.

But what about this budget? Will the Finance Minister increase infrastructure spending yet again?

If she does, then expect infra stocks like road and highway stocks to be on fire. In you have these stocks in your portfolio, this part of the budget speech will be important.

On the other hand, if there is no increase in infra spending, the market might not take it too badly. This is because the government can always increase next year's infra spending in the next budget in February 2025.

In any case, expect the government to commit to continued investments in this space. Also watch out for any big ticket project announcements. Such announcements always fire up specific stocks in the infra space. The example of the surge in railway stocks last year comes to mind.

Real estate will also be in focus. The government's housing for all initiative has received a boost recently. The industry expects the government to offer more tax incentives like hiking the interest deduction amount on home loans.

If you have realty stocks in your portfolio, there could be some positive surprises in store.

Renewable Energy Stocks

This will be a big talking point in the budget. The government has made a clear commitment to this sector and funding in not expected to slow down. Solar energy stocks and wind energy stocks will be in the limelight.

In the interim budget, the government announced that the rooftops of 10 million households will be solarised to achieve a capacity of 20-25 GW.

These two industries are expecting more positive announcements this times around. Specifically, the they want the government to clear more projects, offer more financial incentives, and help in the development of a vibrant renewable energy ecosystem in India.

If you hold renewable energy stocks in your portfolio, then you should be interested in this budget. There could be some big announcements coming the way of these companies.

Technology Stocks

The tech sector has been making many specific recommendations to the government in light of the 2047 target for Viksit Bharat.

We don't expect the government to implement all these measures but we could see major spending announcements.

In the interim budget, the government offered Rs 1 trillion allocation to R&D in the form of interest free or low interest long term loans to give a big boost to innovation.

Richa Agarwal, editor of the Hidden Treasure smallcap stock recommendation service at Equitymaster, has written in an editorial that the government should prioritise innovation and intellectual property, particularly patents.

Here's Richa...

• A bill introduced in the Budget of 2023, the Anusandhan National Research Foundation Bill, has been instrumental in driving sizeable contribution from the private sector, to seed, grow and promote research and development (R&D).
  
  Hence the new allocation, in 2024, should be able to leverage the momentum.
  
  Research on electric mobility, green energy, semiconductors, medical technology, infrastructure, transportation, artificial intelligence are just few of the areas whether such funds could be deployed.
  
  India has witnessed a surge in innovation, with an average of 247 patents filed per day in 2023, the highest in the last two decades, according to a report by SBI Research and the Indian Patent Office.
  
  Patent filings increased by 17% to 90,309 in 2023, and the average patent pendency was reduced by 15 months to 53 months. As per the data, 0.84 m patents have been filed in the country until 2023.

If you have tech stocks in your portfolio, it's reasonable to expect the government to double down on investments in technology. Depending on the nature of the spending, specific tech stocks could benefit from the government's decisions.

Defence

This is a long term megatrend that is here to stay.

The defence allocation in the interim budget reached a record Rs 6.21 trillion for FY25, an increase of 4.7% from FY24. This amount is about 13% of the total budget.

The crucial number watched by the market, the amount for capital acquisitions, was 1.72 trillion or about 27.7% of the total defence budget. The government recently released the latest list of defence items that are to be indigenised.

If you own defence stocks, expect more incentives for defence manufacturing, localisation, R&D, etc. There will likely be a reaction by the market to specific announcements in the defence sector. Many stocks could be impacted.

We believe, many defence stocks especially those in high-tech segments like sensors, radars, missiles, drones, etc will benefit in the long term.

Long Term Planning

Indian governments have long been accused of lacking long-term vision. Budgets have been used as a tool to push policies that benefit voters in the present as opposed to the future.

Now, there is nothing wrong about such an approach. It's just that long-term planning has not been a strong point of the Union Budgets in the past.

In her address to Parliament, the President of India, Droupadi Murmu, said the upcoming budget would be a futuristic document.

• "My Government will present its first budget in the forthcoming session. This budget will be an effective document of the Government's far-reaching policies and futuristic vision.
  
  Along with major economic and social decisions, many historic steps will also be seen in this budget. The pace of reforms will be further accelerated in tune with the aspirations of people of India for rapid development."

The market will be eagerly waiting for any kind of big announcement related to the future of the Indian economy. The big theme of this year's budget could be Viksit Bharat by 2047.

Thus, there are expectations that the government will take at least one historic policy decision to achieve this goal.

Conclusion

Investors should not base their specific investment decisions on events like the budget. History has proven that the market forgets about the budget very quickly.

However, some decisions will be important. These decisions could have a material impact on specific stocks and sectors.

Investors should keep an eye on such decisions and assess its impact on the stocks in their portfolios.

Happy investing!

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...