Reviewing the budget, brokerage house Motilal Oswal noted that the government has not announced any new schemes or incentives and has followed the fiscal deficit consolidation path while supporting its investment-led spending growth strategy.
In contrast to market expectations of 5.3-5.4% of GDP (and MOSL forecast of 5.2% of GDP), the Government of India (GoI) has budgeted a fiscal deficit of 5.1% of GDP for FY25, implying a consolidation of 70. basis points ( bp) next year. Moreover, the GoI has also lowered its deficit target for FY24 to 5.8 percent of GDP, despite the fact that the nominal GDP growth estimate for FY24 has also been revised downwards.
“The Account Vote was presented against the backdrop of a bullish macro and micro environment for India, with equity markets reaching new highs. Further, this was the last budget before the upcoming Lok Sabha Elections in April-May 2024, and thus. expectations of some populism was not unfounded given the underlying weak consumer demand in the economy, especially in rural India,” the brokerage stated.
However, the budget avoided populism and instead adhered to the path of fiscal consolidation without making any populist announcements for any section of the society, it added.
The brokerage further pointed out that as in the recent past, the budget math looks quite credible with 10.5 percent nominal GDP growth and 5.1 percent fiscal deficit for FY25E. This highlights the government’s intention to achieve the fiscal deficit target of 4.5% made for FY26. This will keep the 10Y yields under control and provide a favorable framework for higher private capex in the economy, it noted.
Moreover, sticking to fiscal consolidation in a year of high-stakes general elections augurs well strategically from the country’s valuation perspective, even as India prepares for its inclusion in global bond indices.
Consumption, however, did not receive any push in the budget from a short-term perspective. Therefore, by that measure, it is a moisturizer. Corporate earnings in Q3FY24 again highlighted the prevailing weak consumer demand in the economy, MOSL observed.
Strategy
Overall from an equity market perspective, the brokerage believes that the budget further reinforces India’s strong macro-micro position in an increasingly fragile world.
“Equity markets would benefit from a long-term focus on fiscal consolidation and capital. A combination of 7 percent GDP growth and 15 percent Nifty earnings CAGR over FY24-26, supported by a stable currency and moderating inflation puts India in a quasi-gold scenario. We anticipate the market will quickly discount the budget and shift focus to the trajectory of corporate earnings growth, which has remained resilient so far in 9MFY24 (albeit, witnessing some challenges with downgrades outweighing updates in 3QFY24).We continue to expect over 20. percent earnings growth for Nifty in FY24. Valuations for Nifty remain in line with its LPA at 19.5-20x one-year forward earnings,” the brokerage predicted.
It favors PSU Banks, Industrials (Capital Goods, Cement), Real Estate, Consumer Discretionary, and NBFCs, while it is ‘underweight’ on IT and Metals. MOSL also recently upgraded Energy to ‘neutral’ and downgraded Automotive and Pharma to ‘neutral’ in its model portfolio review.
Best storage ideas
Large caps – L&T, SBI, ICICI Bank, Coal India, Titan, M&M, Gail, ITC, HCL Tech, Cipla.
Middle hats – Indian Hotels, Zomato, Godrej Property, Sobha Developers, Dalmia Bharat, Angel One, IIFL Finance, PNB Housing, Lemon Tree, Restaurant Brands Asia.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 05 Feb 2024, 14:17 IST