Budget 2024: Key Segments to Watch and Top Stock Picks by Jefferies India Pvt Ltd

The upcoming Budget 2024 is poised to make a significant impact on various sectors within the Indian economy. Analysts at Jefferies India Pvt Ltd have identified four key segments that are likely to benefit from the budget: affordable housing, capital expenditure (capex) plays, consumer-driven sectors, and rate-sensitive industries. Meanwhile, sectors such as Information Technology and Pharmaceuticals are expected to face a lack of significant triggers. This comprehensive analysis delves into the anticipated budgetary allocations and their potential market implications.

Government’s Fiscal Strategy: A Balancing Act with Cushion

According to Mahesh Nandurkar, Abhinav Sinha, and Nishant Poddar of Jefferies, the government typically faces a challenging balancing act during budget allocations, striving to maintain fiscal discipline while fostering capex and growth. This year, however, there appears to be a substantial fiscal cushion that allows for higher capex and social spending without compromising fiscal tightness. The government has garnered approximately Rs 1.5 trillion in fiscal support since the interim budget presentation on February 1st, largely due to an additional Rs 1.2 trillion from the Reserve Bank of India’s dividend.

Lower Fiscal Deficit and Income Tax Buoyancy

The actual fiscal deficit for FY24 was 25 basis points lower than initially estimated in the February 2024 budget. Moreover, increased income tax collections have contributed an additional ₹300 billion, providing the government with an overall fiscal headroom of about 40–50 basis points.

Positive Outcomes Anticipated

1. Significant Income Tax Relief

Jefferies anticipates that the government might offer substantial income tax relief aimed at the middle-class demographic with incomes ranging from ₹10 lakh to ₹15 lakh. This relief could boost discretionary consumer demand, benefiting companies such as Jubilant FoodWorks, Devyani International, Bharti Airtel, Zomato, Nykaa (FSN E-Commerce Ventures), Honasa Consumer, Trent, and Reliance Retail (Reliance Industries). Additionally, manufacturers of passenger vehicles like Maruti Suzuki India and consumer durables companies such as V-Guard Industries, Crompton Greaves Consumers, and Havells are likely to see positive impacts.

2. Revival of Interest Subsidy for Urban Housing

The government may reintroduce the Interest Subsidy (CLSS) scheme for urban housing, which would positively affect developers like Lodha (Macrotech Developers Ltd) and Sunteck Realty, as well as affordable housing lenders like AAVAS Financiers and Home First Finance Company India.

3. Increased Capex Budget

A projected increase of approximately ₹0.3 trillion or 20% year-on-year growth in the capex budget is expected, which would provide reassurance to contractors and capital-good companies, notably benefiting Larsen & Toubro.

4. Enhanced Welfare Spending

Non-capex welfare expenditures are expected to rise by around Rs 0.5 trillion. This could include the expansion of the government’s health insurance scheme to cover all senior citizens and significant improvements in rural infrastructure. Companies like Hindustan Unilever and two-wheeler manufacturers such as TVS Motor Company, Hero MotoCorp, and Mahindra & Mahindra could benefit from these initiatives.

5. Reduced Borrowing Targets

Jefferies also anticipates a reduction in the borrowing target, which would be positive for rate-sensitive sectors like real estate and Non-Banking Financial Companies (NBFCs).

6. Moderate Tobacco Taxation

Tobacco taxation changes, if kept below 5-7%, could be favorable for ITC, as per Jefferies’ analysis.

Top Stock Picks in Highlighted Segments

1. Affordable Housing and Developers

• Lodha (Macrotech Developers Ltd)

• Sunteck Realty

• AAVAS Financiers

• Home First Finance Company India

2. Consumer and Retail Chains

• Jubilant FoodWorks

• Devyani International

• Bharti Airtel

• Zomato

• Nykaa (FSN E-Commerce Ventures)

• Honasa Consumer

• Trent

• Reliance Retail (Reliance Industries)

3. Automobile and Consumer Durables

• Maruti Suzuki India

• V-Guard Industries

• Crompton Greaves Consumers

• Havells

4. Capital-Good Companies

• Larsen & Toubro

5. Rural-Focused Companies

• Hindustan Unilever

• TVS Motor Company

• Hero MotoCorp

• Mahindra & Mahindra

6. Real Estate and NBFCs

• Rate-sensitive real estate developers and NBFCs (specific companies not mentioned)

7. Tobacco Sector

• ITC

In Conclusion, Budget 2024 is expected to provide a significant boost to various sectors within the Indian economy, with Jefferies India Pvt Ltd identifying key segments and top stock picks poised for growth. Investors should keep an eye on the budget announcements to make informed investment decisions, leveraging the insights provided by Jefferies’ comprehensive analysis.