Budget In Sight, JPMorgan Sees Market Volatility, But Remains Bullish On These Sectors
The 2025 Union Budget will 'continue to prioritise infrastructure and public investment, with some support for consumption', JPMorgan said.
As India gears up for the 2025 Union Budget this Saturday, JPMorgan tells investors to "brace for volatility" while being overweight on financials, industrials, healthcare, real estate, consumer goods and cement.
The options market’s repricing of risk appears incomplete, JPMorgan said as historical periods of heightened uncertainty indicate that implied volatility could increase further. "We recommend hedging with Nifty collars and buying straddles to prepare for potential near-term volatility," it said in a note.
The spending power is likely to be limited by lower deficit targets and indirect tax income and slow capital gains tax contributions, according to analysts at JPMorgan. However, "the budget will continue to prioritise infrastructure and public investment, with some support for consumption."
With fiscal policy expected to tighten, the onus will be more on monetary policy to stem the slowdown, the brokerage said.
Emphasis will be on sectors like railways, housing, urban infrastructure, and defence, besides retaining the concessional loans extended to states, JPMorgan said. "Besides the fiscal math, budget speech will be important if it touches upon any pressing economic reforms or policies."
Fiscal consolidation is expected to continue, according to the brokerage. It estimates that the central fiscal deficit outturn is likely to be 4.8% of GDP. The slowdown in government spending, along with strong tax collections allows the government to beat its deficit target, it said.
The Reserve Bank of India's steps towards boosting liquidity raise the likelihood of an interest rate cut in the RBI meeting on Feb. 7, JPMorgan said.
Assuming the worst of the regulatory action in unsecured lending is behind us, liquidity improving in the system and moderation in food inflation will help put consumption growth back on the recovery path, it added.
JPMorgan's Sectoral Allocation
Financials: The overweight stocks in this sector include Kotak Mahindra Bank, ICICI Bank, State Bank of India, KFin Technologies, HDFC AMC, LIC Housing Finance, Shriram Finance, SBI Life, and Life Insurance Corp.
Industrials: The preferred stocks in this category are Larsen & Toubro and Hindustan Aeronautics.
Healthcare: The overweight allocation includes Sun Pharma, Lupin, Mankind, Max Healthcare, Rainbow Hospitals, and Fortis Healthcare.
Real Estate: Stocks in this sector with a favourable allocation are DLF, Godrej Properties, and Oberoi Realty.
Consumer: The brokerage is overweight with favoured stocks including Hindustan Unilever, Colgate, Marico, Mahindra & Mahindra, Jubilant FoodWorks, and MakeMyTrip.
Cement: UltraTech is the overweight stock in this sector.
Underweight Sectors: JPMorgan has an underweight stance on materials and passenger vehicles.
