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Union Budget 2024-2025: On the Right Path
- Jul 24, 2024
Key Highlights of the Budget by Sharekhan Research
If only the Government had not changed the Capital Gains Tax (Short and Long) and had not increased the Securities Transaction Tax (STT) in Derivatives, the stock market would have been ecstatic about the Union Budget 2024-25.
It is apparent that fiscal prudence was the Budget's primary USP. Despite a healthy capital outlay of ? 11.11 lakh crore and additional expenditures in the key areas of agriculture and allied sectors (allocation of ? 1.52 lakh crore), skill development and employment creation (allocation of ? 1.48 lakh crore), middle class tax relief (revenue loss of ? 29,000 crore), and also providing a much higher allocation for the development of Bihar and Andhra Pradesh, the government has set the target for the fiscal deficit at 4.9% of GDP.
In actuality, the capital outlay, which includes grants for capital assets, has increased from ? 12.5 lakh crore to ? 15 lakh crore (including grants for capital assets of ? 3.9 lakh crore) in the preceding fiscal year. Additionally, the current strategy to support the housing, energy, tourism, and manufacturing sectors remains unchanged.
We believe that, considering the 10.5% nominal GDP growth anticipated in FY25, the estimated growth of 11.7% in gross revenues for FY25 appears acceptable. With the added expenses, it may prove difficult to meet the predictions that cap overall expenditure growth at 7.3% and revenue expenditure growth at just 4.8%. Thus, it appears that the government is also placing a wager on FY2025 revenue buoyancy that is higher than anticipated.
Regarding the capital gains tax, the government wants to raise the Short-Term Capital Gains tax (STCG) from its current 15% rate to 20%. Additionally, the securities transaction tax on the Futures & Options (F&O) market has increased. This is unmistakably consistent with the regulators' concerns—RBI and SEBI—about excessive speculative activity on the part of individual investors.
If there was an intriguing aspect in the Union Budget, it would have to be the changes made in the long-term capital gains (LTCG) to 12.5% from the previous 10%, given the fact that it would make more sense to have a higher differential in taxation, if the policy objective is to encourage long-term investing by retail investors.
Overall, the Budget is growth-oriented, and equity markets would readily adapt to adjustments in taxation following today's rash reaction. Therefore, investors should take advantage of the volatility to invest in high-quality stocks and ride the Indian economy's multi-year economic upcycle. According to consensus, earnings growth would continue to be robust, with the Nifty predicted to increase at a 14-15% CAGR over the next two years.
We have been recommending a revision of investment portfolios on two accounts in terms of portfolio strategy:
First off, a lopsided exposure to small/microcaps is not recommended at this time because the risk-reward ratio in large caps is far better.
Second, there's a case to be made for boosting exposure to some IT Services, Pharmaceuticals, and select Consumer and Speciality Chemical stocks that have underperformed the market in recent years.
Sharekhan’s Investment Picks
Large Caps
TCS | Infosys | DLF |
ITC | ICICI Bank | M&M |
SBIN | L&T | Tata Motors |
HUL | Dabur | Sun Pharma |
Hero MotoCorp | NTPC | PowerGrid |
UltraTech | Coal India |
Mid Caps
Kajaria Ceramic | JK Lakshmi Cement | Bharat Forge |
HAL | BEL | Persistent Systems |
Sundram Fasteners | Carborundum Universal | Varun Beverages |
Zydus Wellness |
Small Caps
Kirloskar Oil Engines | Radico | DEE Development |
ABDL | Arvind Smartspaces | KEC |
Garware Hitech | Lumax Auto Technologies | ISGEC |
Emami |
Sectoral Analysis
Budget Beneficiaries | |
Sector | Hits / Misses |
Consumer Goods & Discretionary (Hit) | |
No change in tax rate on cigarettes | (Hit) ITC and other cigarette companies |
Boost to consumer sentiments via higher allocations under various rural schemes | (Hit) Hindustan Unilever, Dabur India and other FMCG companies |
Reduction in customs duty on Gold and Silver to 6% and on Platinum to 6.4% | (Hit) Titan, Kalyan Jewellers, Senco Gold and other branded jewellery companies |
Increased focus on promoting domestic tourism | (Hit) Indian Hotels Company, Lemon Tree Hotels, Thomas Cook India and other companies |
HFCs (Hit) | Gold Financiers (Miss) | |
The government will build additional 3 crore houses in rural and urban areas under PM Awas Yojana credit-linked subsidy. | (Hit) HFCs |
The government has announced the PM Awas Yojana - Urban 2.0 and has proposed assistance of Rs 2.2 lakh crore from government over 5 years. Housing needs of 1 crore urban poor and middle class families to be addressed with a total investment of Rs 10 lakh crore. | (Hit) HFCs |
Customs duty on gold has been cut to 6% from 15% which would result in lower gold prices. Lower gold prices will lead to lower LTVs for gold financing companies and thereby impact AUM growth. | (Miss) Gold Financiers |
Building Materials (Hit) | |
Increased allocation towards PMAY – Urban to Rs. 30,171 crore (up 20.2%/36.5% vis-a-vis FY24BE/FY24RE) on account of Rs. 4000 crore additional allocation towards credit linked subsidy scheme for EWS/LIG/MIG. Allocation towards Pradhan Mantri Awas Yojana (rural) maintained at Rs. 54,500 crore as compared to the FY25 Interim budget. Allocation towards Smart Cities maintained at Rs. 8000 crore as compared to FY25 Interim Budget. | (Hit) Kajaria Ceramics, Century Plyboards, Greenlam Industries, Supreme Industries, Astral, APL Apollo |
Jal Jeevan Mission outlay maintained at almost Rs. 70,000 crore as compared to FY25 Interim Budget. | (Hit) Supreme Industries, Astral, Hi-tech pipes, APL Apollo |
Cement (Hit) | |
Maintained effective capital investment (Rs. 15 lakh crore), allocation to MoRTH (Rs. 2.78 lakh crore), Smart Cities (Rs. 2400 crore), AMRUT (Rs. 8000 crore) as provided in FY25 Interim Budget. Increased allocation towards PMAY – Urban to Rs. 30,171 crore (up 20.2%/36.5% vis-a-vis FY24BE/FY24RE) on account of Rs. 4000 crore additional allocation towards credit linked subsidy scheme for EWS/LIG/MIG. | (Hit) UltraTech, Shree Cements, Dalmia Bharat, JK Lakshmi Cement |
Infrastructure (Hit) | |
Effective capital investment including state and off balance sheet has been retained at Rs. 15 lakh crore compared to FY25 Interim Budget. Continuation of interest free loan to state governments to incentivise infrastructure investment with an outlay of Rs. 1.5 lakh crore. Outlay on MoRTH and NHAI maintained at Rs. 2.78 lakh crore and Rs. 1.68 lakh respectively compared to FY25 Interim Budget. Pradhan Mantri Gram Sadak Yojana outlay maintained at Rs. 12,000 crore compared to FY25 Interim Budget. Jal Jeevan Mission outlay maintained at almost Rs. 70,000 crore as compared to FY25 interim budget. | (Hit) L&T, PNC Infratech, among others |
Real Estate (Miss) | |
Although long-term capital gains tax has been lowered to 12.5% from 20%, indexation available under second proviso to Section 48 is proposed to be removed for calculation of long term capital gains presently available for property. | (Miss) DLF, Macrotech, Oberoi realty, Sunteck Realty, Mahindra Lifespace Developers, Arvind Smartspaces, Puravankara |
Short-term capital gain tax rate increased to 20% from present 15% for units of a business trust. Long-term capital gain tax rate hiked to 12.5% from 10%. However, an exemption of gains for long term capital gains has been increased to Rs. 1.25 lakh from Rs. 1 lakh of income. | (Miss) Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India REIT, IRB InvIT, Powergrid InvIT |
Allocation of Rs. 3000 crore towards credit linked subsidy scheme (CLSS) for EWS/LIG and allocation of Rs. 1000 crore for MIG. | (Hit) Macrotech, Sunteck Realty, Mahindra Lifespace Developers, Arvind Smartspaces, Puravankara |
Holding period for units of listed business trust is reduced to 12 months from earlier 36 months for determining whether the capital gains is short term or long term. | (Hit) Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India REIT, IRB InvIT, Powergrid InvIT |
Healthcare (Hit) | |
Proposed changes in the basic customs duty for X-ray tubes and Flat panel detectors for use in medical X-ray machines under the phased manufacturing programme to synchronise them to domestic capacity additions. Three cancer treatment medicines be exempted from basic customs duty completely:
| (Hit) Artemis Medicare (Hit) Astrazeneca Pharma |
Sharekhan's Research Disclaimer