“The central government capex has tripled over the last five years. FY25E growth could be limited to 7-8%, as fiscal consolidation takes a toll. This low number might disappoint the market, and stocks exposed to the government capex program may see some correction,” Jefferies analyst Mahesh Nandurkar said.
The brokerage firm recently reduced L&T to neutral in its India model portfolio.
Also read | Budget 2024 may be interim but investors need to watch out for these 5 things
Jefferies said it is not expecting an immediate tax hike, considering elections, some post-election measures such as higher capital gains tax are possible during the year. “Disinvestment may also get ramped up post elections, partly as the government capitalizes on the sharp run in PSU stocks in sectors such as railways, defence etc,” it said.
Privatisation candidates include Concor, BEML, IDBI and SCI.
The government has reduced the fiscal deficit from the Covid high of 9.1% of GDP in FY21 to 5.9% by FY24E. A further reduction of 1.4ppt is planned over FY24-26 to 4.5% of GDP. “We estimate FY25E fiscal deficit target at 5.2% of GDP. Assuming the tax revenue growth at 12.5% (similar to FY24E, driven by 11% nominal GDP and 15% corporate earnings growth); the total expenditure growth would have to be limited to 7-8% (vs. 9% in FY24E),” the brokerage said.
In the election year, analysts expect social spending of the government (ex subsidies) to rise by 7-8% in FY25 against a 4% increase in FY24.While many are expecting the interim Budget to be a non-event, Nandurkar said 2019 precedent shows that the interim Budget is going to be ‘The Budget’ for FY25.
“The post-election FY20 budget had only minor adjustments from the Interim Budget presented in Feb19. Our analysis shows that revenue/expenditure and fiscal deficit estimates in the later budget were within 1ppt / 10bps of the Feb19 one. The major announcements of 2019 viz. the welfare scheme for farmers (income transfer of Rs750bn) were announced in the interim budget itself. We expect a continuation of the precedent for the 1st Feb 24 budget,” he said.
Tobacco taxation changes, which can affect ITC and other tobacco stocks, look unlikely in the interim Budget. The market is also expecting a potential hike in FPI limit in banks/insurance cos to 100% from 74% currently and PSU banks (20% FPI cap to facilitate IDBI privatisation).
Renewed interest subvention scheme for affordable/mid-income housing is likely which is positive for select developers (Lodha, Sunteck) and HFCs (Aavas, Home First), Jefferies said.
Any significant boost to rural infra/welfare schemes (housing-for-all, village roads, income transfers) will be a sentimental positive for cement and rural recovery.
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