Budget 2024: Tax breaks and rural triggers may keep consumer stocks in play

While the Budget for FY25 ticked most of the right boxes, especially on the macro front, negative surprises in the form of higher tax incidence on financial assets and the withdrawal of indexation benefits on real estate led to a selloff initially. The Nifty50 dropped as much as 1.75 per cent before recovering to end almost flat over Monday’s close.

Unlike the interim Budget earlier this year, which focussed on the infrastructure segment, the focus of the full Budget was on creating jobs, skilling and tax incentives for the middle class. For the urban consumer, higher standard deductions, increased deductions for family pensions and changes in slab rates would result in savings of Rs 17,500 under the new tax regime. This will result in higher incomes, spurring consumption.

These measures as well as status quo on cigarette taxes reflected on the Nifty FMCG index, which gained 2.7 per cent. While ITC was the top gainer with a 5.5 per cent rise in its stock price, the other gainers were Godrej Consumer Products, Dabur India, and Tata Consumer Products.

On the other hand, higher allocations to rural development and agriculture by 11 per cent and 8 per cent, respectively, are other positives, especially for consumer companies that have a higher share coming in from the rural segment. In addition to rural schemes, normal monsoons are expected to sustain the rally of consumer majors.

Listed jewellery makers have been the other major gainer from the Budget. The basic customs duty (BCD) on import of gold and silver bars has been reduced from 15 per cent to 6 per cent. The Nifty Consumer Durable index (jewellery companies are part of this index) was the second biggest gainer across indices, rising 2.1 per cent.

The multiple measures to boost the housing sector are positive for the real estate and the building material space. While the PM Aawas Yojana 2.0 is expected to meet the housing needs of the urban poor and middle class families at an investment of Rs 10 lakh crore and give fillip to the sector, the lack of indexation benefit (purchases after 2001) is a dampener. The real estate index was the biggest loser, falling 2.3 per cent.

Money managers such as Vinit Sambre, head, equities, at DSP Mutual Fund believe that the Budget was able to meet the multiple expectations of adhering to the fiscal discipline, maintaining the capex spend cycle, supporting the lower income groups with welfare measures and managing coalition pressures. Going ahead, return expectations of multiple sectors such as defence, PSUs and engineering may have to be tempered, given the sharp jump in valuations.

Given the valuation concerns, there could be a rebalancing going ahead. Rahul Singh, CIO-equities, Tata Asset Management, expects markets to be more balanced as the growth in cyclical sectors (defence, manufacturing, capital goods, power) that have done well over the last 12-24 months gets supplemented by the potential recovery in consumption as a result of the Budget provisions.

The ongoing earnings season and the upcoming monetary policy on August 8 remain the key triggers in the near-term.