Budget 2025: Sops could reverse underperformance in consumer stocks

The real estate indices were up 3-4% as gains on personal taxation front coupled with measures related to affordable housing, stuck projects and relaxations in TDS limits found favour with investors

The Street had little to complain from the Budget for 2025-26 as its measures to boost consumption and a modest increase in capital expenditure while keeping fiscal deficit in check were broadly in line with expectations. There were no shocks, as was the case in the previous Budget (changes in securities transaction tax and long term capital gains tax), and that too helped the benchmark indices close the Saturday session in the green.

 

The clear winner among major sectors was consumption. In addition to staples, consumer durables, auto and discretionary companies led the gainers among sectoral indices. Vinay Paharia, chief investment officer of PGIM India Mutual Fund, said the Budget clearly favoured boosting consumption over investment demand. This could help improve consumption which has slowed down in the last couple of quarters.

 

The second theme investors preferred was real estate. Real estate indices were up 3-4 per cent as gains in personal taxes coupled with Budget measures for affordable housing, stuck projects and relaxations in TDS limits found favour with investors. The government increased allocation to an urban housing programme and will offer liquidity support to stressed residential projects.

 

As investors pivoted to the consumer sector, there was a bit of a selloff in the infrastructure, capital goods, banks and the oil and gas. While the Budget allotted a sizable Rs 11 trillion to capital expenditure, the 10 per cent increase on a lower base was a bit of a letdown for infrastructure bulls. Listed majors in the rail, infrastructure, power, commercial vehicles and defence sectors lost 4 per cent due to lower allocation and valuation concerns. Oil marketing companies ended weak as they were not compensated for under recoveries on LPG. Banking stocks fell as a rise in gross borrowings could lead to rising yields impacting treasury income, according to Mirae Asset Capital Markets. 

 

Vinit Sambre, head, equities at DSP Mutual Fund, said that the government has kept investments in infrastructure steady and it is prodding the private sector to pick up its share of investments. Besides seeking to boost consumption, the government is eyeing reforms at a broader level through steps such as ease of doing business, the Make in India programme and incentives for the MSME sector to bridge the missing pieces of the growth story: Unemployment, exports and lack of private sector investment.

 

Given the shortfall in the government achieving its FY25 capex target due to elections, new schemes and equity infusion into BSNL, money managers and experts said that there is a need for improved execution for benefits to flow through in the near term. Though the government's capital expenditure allocation has increased moderately, the emphasis is likely to shift towards effective implementation through the public-private partnership model, said Vishal Kotecha, director and head – Infrastructure Group, India Ratings & Research. That is evident from initiatives aimed at creating a three-year pipeline of projects, annual monetisation plan, access to PM Gati Shakti Data ensuring a steady stream of investments and timely execution, he added.

 

Given the slowing profit growth and a muted earnings season, triggers for the market would be tax measures (next week) and the monetary policy.