Finance Minister Sitharaman announced a NIL personal income tax on income up to Rs 12 lakh under the new tax regime. Even though the existing slabs and tax rates remain the same, the net taxable amount would be zero through various rebates on offer.
This would leave money in the hands of people, hoping they would in turn save and spend some of that to boost consumption, which has been languishing in the last few quarters.
“The reduction in personal income tax burden is nothing short of stimulus to the tune of Rs 1 lakh crore,” said SBI Securities in a note.
A host of sectors, particularly the consumer facing companies like HUL, Dabur, ITC, and auto companies like Maruti, Bajaj Auto, Hero MotoCorp are likely to be benefitted from this. Most of these consumer companies had faced the wrath of a muted urban demand, leading to a slowdown in earnings.
Within this space, Bajaj Broking has picked Dabur as its favourite in post Budget play. “Overall, the budget’s consumer-focused initiatives are expected to drive economic growth and improve consumer sentiment, positioning Dabur to capitalize on the resulting uptick in demand,” it said.For the auto segment, companies have flagged subdued for entry level vehicles for quite some time now. The bet of the policymakers is that some of the disposable income will also flow into the auto space. Additionally, tourism is also expected to get a boost, likely benefitting some of the companies in this space.”From an equity markets standpoint, consumption segments are likely to benefit. As regards portfolio, we maintain our quality, defensive bias and prefer consumption over capex,” said Nuvama Equities.
Analysts said personal income tax cut also encourages retired population and pension earners to park their savings in the fixed deposits, which augurs well for deposit starved banks in medium to long term.
The real estate sector will also be a major beneficiary, with 60% of additional household savings expected to flow into housing investments. “The housing sector’s growth will have a multiplier effect on cement, steel, home furnishings, and banking finance, ensuring widespread economic benefits,” Deven Choksey, MD, Dr Choksey.
For FY26, the government’s capex spending is benign at around 10% for the second straight year. Even including PSUs, the growth rates are quite moderate suggesting that best of the capex is now perhaps behind.
The capex was revised to Rs 10.18 lakh crore for FY25, given that the government fell short of original estimated spending of Rs 11.1 lakh crore. While there has been a late-year burst in disbursements in December 2024, spending will need to grow by a significant 21% in the remaining three months of the year, which will be an uphill task.
This meant that the government had opted for a modest and most realistic portrayal of its capital expenditure spending.
Within the overall capex, central government capex is only 13%. It is rather the household and unlisted corporate sector that constitute more than 50% of overall capex. Nuvama points out that now even the government capex is slowing down
“Capex could slow meaningfully ahead as government capex weakens and private sector too is either deleveraging or witnessing weak profitability,” the brokerage said.
In this context, SBI Securities said it remains constructive on sectors such as auto, auto ancillary, realty, FMCG, healthcare, renewables, railways, defence, ERW pipe makers and select banks and NBFCs with medium to long term investment horizon. Meanwhile, Nuvama is overweight on consumer, private banks, insurance, chemicals, pharma and telecom.
Railway stocks, which have been the biggest beneficiary of modernisation and safety plans of the government, also didn’t get any push from the Budget. There is a marginal increase in capex towards laying of new lines, signaling, track renewals and payment of capital components for leased assets.
Sitharaman also talked about a National Manufacturing Mission for clean tech manufacturing, which targets a 38% increase in domestic capacity for EV batteries, solar panels, and other critical components. This is in line with moving towards India’s green energy goals, where solar and other clean energy stocks will continue to remain in focus.
Now that the Budget is done, the market focus will shift to fundamental factors like corporate earnings growth, economic recovery, and global conditions. The RBI policy, where most analysts expect a rate cut later this week, will also be a crucial factor in dictating the market direction.
Indian markets have been in a corrective phase for over three months now with benchmarking Nifty dropping 10% from the peak. This was mainly led by foreign capital outflows and geopolitical uncertainty.
“The right strategy for investors in 2025 is clear: buying in market corrections should turn out to be the best investment opportunity of this decade. With India on track to becoming a global economic powerhouse, this is one of the best times to be invested in equities for the long term,” said Choksey.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
