Emkay Expects A Quiet Budget For Equities, Says Lending Guidelines, Monetary Policy Easing Key To Watch
The brokerage remains cautious on Indian equities as it sees vulnerability in the Jan-March quarter due to sustained FPI selling and weak earnings support.
Finance Minister Nirmala Sitharaman is unlikely to stray from the pre-announced consolidation path in the upcoming Budget 2025, according to Emkay Research which expects it to be "relatively quiet with a focus on continuity rather than dramatic change".
The brokerage remains cautious on Indian equities as it sees vulnerability in the Jan-March quarter due to sustained FPI selling and weak earnings support. Its Nifty target for 2025 implies an upside of 8%.
"We are, however, more optimistic on the longer-term outlook," it said. "We expect a discretionary consumption rebound in 2HCY25, driven by easier credit and a hiring bounce-back."
The brokerage is 'overweight' on consumer discretionary and healthcare, while being 'underweight' on financials and staples.
"The heavy lifting would have to be done by relaxed lending guidelines and monetary easing further down the line," Emkay said and noted that it expects some sector level changes.
Amid all this, the brokerage recommends taking long positions in sectors such as EMS, new energy and EVs and avoiding life insurance.
Under tax regime changes, important announcements for the Budget to be announced on Saturday are a further convergence to the new tax regime, either through direct Budget proposals or via the tabling of the new direct tax code.
A negative announcement for the gold sector could be changes in gold customs duty while protectionist moves on select sectors like steel, payout of the LPG subsidy are some of the potential positives that can be announced. The brokerage expects no change in the capital gains tax.
For the economy, falling tax buoyancy is still a challenge, but the government is not under pressure to undertake major expenditure cuts, the brokerage said, adding that this augurs well for a mild growth recovery in FY26.
In fiscal 2025, the overshoot on fiscal consolidation was a major drag on growth. "The good news is that in FY26, the extent of consolidation needed to meet the 4.5% target is a mere 20bps, implying a much milder drag on the economy," Emkay said.
At the same time, the brokerage is not building in a downturn in capital expenditure but a more normalised level of growth. According to it, the focus will be on how the sectoral allocation of capex pans out. "Some pockets of infra growth like power are relatively unaffected, as market financing plays a more important role than direct central government funding," Emkay said.
"Central government capex growth has peaked (31% CAGR during FY21-24), and we expect modest growth from here, largely tracking nominal GDP," it added. "The good news is that the 10% expected miss in FY25 sets a low base for FY26 - but beyond that, expect muted growth."
