Budget 2025 Reactions: Analysts See Growth Boost After Tax Cuts, But Some Worry On Fiscal Math

Finance Minister Nirmala Sitharaman's Union Budget 2025 has received largely positive reception from multinational investment banks, who say tax cuts, reform push and fiscal prudence will help India's economic growth, amid a challenging global economic environment. However, government revenue generation to plug the tax hole will be closely tracked.

Here is what Goldman Sachs, Nomura, JPMorgan and other analysts said.

Budget announcements were modest, but Goldman Sachs remains constructive. The adoption of the new tax regime is already high. Tax savings are no longer the primary motivation for purchasing life insurance products, as consumer preferences have shifted. However, demand trends for life insurance products remain healthy.

Taxation on ULIPs now aligns with equity-oriented funds, which is a net positive for this product category, the brokerage said.

The budget aims to balance the difficult fiscal trinity of fiscal discipline, income tax cuts, and consistent capital expenditure outlays. Although capex continues to be a focus, the pace may slow down, Nomura said.

The budget takes a targeted approach, balancing fiscal discipline with growth-supporting measures. Global economic environment, particularly geoeconomic fragmentation, pose challenges, according to the research firm. However, it remains optimistic about medium-term growth, driven by investments, job creation, and increased consumption.

The pressures on fiscal consolidation due to income tax and import duty cuts will likely require expenditure compression. Tax buoyancy could support consolidation, even as public capex may have peaked, JPMorgan said.

Infrastructure-related capex growth in financial year 2025-26 may underperform, which is a sentiment negative for companies like Larsen & Toubro Ltd. On the other hand, growth in defence-related capex could benefit companies like Bharat Electronics Ltd.

On a cautious note, while expenditure assumptions may be met through the pruning of schemes, tax revenues could underperform, according to HSBC. Overall, the fiscal impulse is mildly negative and outlook on Indian government bonds is slightly bullish, even as rupee depreciates, it said.

The budget has a balanced approach between growth and fiscal prudence, BofA said. The government's fiscal stability could provide room for monetary policy support from the RBI. However, concerns loom over the personal income tax cuts and the need for a closer examination of revenue assumptions. Executing capex spending to support GDP growth will be important, it said.

Taking a more critical stance, Bernstein noted that the Budget lacked boldness and clear policy direction. Capex and social welfare for lower-income households were deprioritised, and the capex revision appears to be an underpromise.

The brokerage remained underweight on industrials, upgraded consumer staples to equal-weight, and is positive on certain stocks in QSR, retail, and small cars in autos. It maintained an 'overweight' position in financials and IT, while adopting a more cautious stance on small and mid-cap stocks.

The budget will have positive impact on consumer sentiment and consumption demand, particularly in the discretionary sectors, including autos, due to lower direct income taxes. A recovery in public capex starting in December 2024 and a sharp increase in PLI allocation should enhance domestic manufacturing and export competitiveness.

Consumption sectors, especially companies like Maruti Suzuki India Ltd. and IndiGo-operator InterGlobe Aviation Ltd. will be beneficiaries of the budget's measures, the brokerage said.