Union Budget, Budget 2024, Budget Tablet, Sitharaman, Nirmala Sitharaman
The Finance Minister presented a comprehensive budget that laid the foundation for fiscal discipline and sustained long-term growth, demonstrating the government’s commitment to ‘reform, deliver and transform’ during the ‘Amrit Kaal’.
The continued focus remained on key pillars such as job creation, robust investment, inclusive growth and fiscal responsibility.
The main highlight of the budget is the government’s steadfast commitment to fiscal prudence. The government lowered the gross budget deficit target to 4.9 percent of GDP for FY25, from 5.1 percent in the interim budget and 5.6 percent in FY24(P), underscoring a continued effort to ensure long-term financial stability. The government’s fiscal consolidation strategy appears well-planned, with conservative estimates projecting tax revenue growth of 11 percent, implying fiscal momentum of 1.1. Lower-than-expected gross borrowing further improves the fiscal outlook, contributing to lower bond yields and avoiding crowding out of private investment.
From a growth perspective, the overall fiscal stimulus is neutral. Additional RBI dividend is partly used to support expenditure at the bottom and partly to accelerate fiscal consolidation. Within expenditure, capex allocation remained the same as in the interim budget. Expenditure in the lower income segments of the economy, including rural, agricultural and SME, has increased. Also, some income tax relief is provided for the middle class under the new regime.
The overall capex momentum continued with the government’s total capex expenditure expected to grow by 17 per cent y-o-y in FY25, building on an already high base from the previous year. Specifically, allocations for PMAY (housing) are up 55 per cent y-o-y and for roads and railways, the growth in total allocation is around 2 per cent y-o-y in FY25 and allocations for metros are up 54 per cent y-o-y in FY25.
The Budget places special emphasis on agricultural productivity, employment generation and environmental sustainability. It encourages a shift in cropping patterns, adoption of advanced agricultural technologies and promotion of export-oriented primary products. On the employment front, it aligns education programmes with the needs of the industry and introduces innovative internship programmes to enhance practical skills through job shadowing. The transition to green energy has already taken firm root in India and the Budget has taken steps to accelerate the process. FM also announced a few tax changes, including an increase in tax on short-term and long-term capital gains on equity and an increase in tax on short-term transactions on derivatives.
Overall, the Budget is based on the trinity of investment, inclusive growth and fiscal prudence. Lower cost of capital, globally competitive tax structure, government-focused sector incentives and other structural reforms implemented in recent years should ensure a meaningful revival of the private capex cycle in the coming years. A period of high public and private capex combined with a commitment to fiscal prudence could result in improved longevity of India’s growth.
From an equity market perspective, we don’t think the budget will materially change the earnings trajectory in the year ahead. From a sector perspective, domestic cyclicals over global fair value sectors such as IT, select banks and consumer stocks are likely to outperform the markets in our view.
Today, the market is as entertaining as Amar Akbar Anthony. There are stocks like Amar, a sincere police officer – which have good fundamentals and fair valuations. There are stocks like Anthony – a person with a good heart but who takes shortcuts, which represent stocks with good fundamentals but high momentum and high valuations. In the movie, Anthony bhai eventually becomes like Amar and everything works out well. That is why we advise investors to choose quality over momentum, high float/diversified ownership over low float/concentrated holdings and fair valuations over expensive valuations.
The writer is a director of Kotak Mahindra AMC
First print: Jul 24, 2024 | 01:38 AM IST