Union Budget 2024 To Boost Discretionary And Consumer Sectors Alongside Capex, Says Jefferies

The much-anticipated budget for this fiscal year, to be announced in July, could bring benefits to several domestic sectors, including affordable housing, capital expenditures, consumer goods, and rate-sensitive sectors, according to a Jefferies report. However, the report also noted that the IT and pharmaceutical sectors might lack triggers.

The consumer sector could benefit from an expected income tax cut. The report stated, "The buoyancy in income tax collections alongside some fiscal space could allow the government to implement a meaningful (Rs 50,000 crore) income tax cut."

It explained that this could be directed at the middle class with an income of Rs 10–15 lakhs, which would positively impact consumer discretionary demand for companies such as Jubilant FoodWorks, Devyani International, Zomato, Nykaa, Honasa Consumer, Bharti Airtel, and retailers including Trent and Reliance.

"This would also be positive for consumer durables (V-Guard, Crompton, Havells) and passenger vehicles (Maruti)," the brokerage added.

Jefferies also expects the government to reintroduce the interest subsidy under the Credit Linked Subsidy Scheme (CLSS) for urban housing. This could benefit affordable housing lenders such as Aavas Financiers and Home First Finance, as well as select developers like Lodha and Sunteck.

"We expect a reduction in the borrowing target as well, which should be positive for rate-sensitive sectors such as property developers and non-banking financial companies (NBFCs)," the brokerage said. "Tobacco taxation changes of more than 5-7% could be seen as positive for ITC."

The capital expenditure budget could see an increase of around Rs 30,000 crore, representing 20% year-on-year growth, which would benefit contractors and capital goods companies, with Jefferies expressing a positive outlook on Larsen & Toubro (L&T).

The report also mentioned that welfare expenditures might be raised by Rs 50,000 crore. The expansion of the government health insurance scheme to include all senior citizens is likely, and any significant boost to rural infrastructure or welfare schemes could be positive for rural-focused companies such as TVS Motor Company, Hero MotoCorp, Mahindra & Mahindra, and Hindustan Unilever.

Jefferies analysis of the interim budget in fiscal 20 as against the final budget shows only a small shift in budget items thus it believes that drastic changes in spending patterns are unlikely. "Our analysis of the FY24 fiscal data reveals that the govt's non-capex expenditure was Rs 0.5 lakh crore below budgeted," it said. "This automatically creates some spending growth headroom on the welfare side."

The brokerage expects bond yields to fall as it sees that government targetting 5.0% as fiscal deficit for FY25, given the large financial headroom. Moreover, yield declines are also supported by rising FPI flows in debt post index inclusion of Indian G-Secs and the recent S&P sovereign outlook upgrade," it said.

Given a weaker than expected political mandate, some investors are worried about the populist pressure in the upcoming budget. It said that the recent announcements of ministerial appointments and modest MSP hikes creates an impression of policy continuity, but budget would be the event to watch for in this regard.