Focus on these 6 sectors post budget; Pharma and IT could be dark horses

In Budget 2024, the government's approach was noteworthy, as it chose to use the RBI’s dividend payout primarily to reduce the fiscal deficit to 4.9 percent, a commendable move under the new coalition government. The Finance Minister (FM) re-allocated expenditures while maintaining capital expenditure at Rs 11.11 lakh crore and increased funding for the rural sector. A significant policy shift introduced was the Employment Linked Incentives (ELI), replacing the Production Linked Incentive (PLI) scheme.

Economic Survey Insights

The Economic Survey highlighted two critical data points:

India needs to create approximately 80 lakh jobs annually until at least 2036.

Factories with over 100 workers have seen a 13 percent workforce growth, indicating a more organized manufacturing sector.

The introduction of ELI aims to accelerate job creation in the formal sector, which is expected to have a strong positive impact on the economy over the next few years.

Government Spending Outlook

The government's spending was lower in the first fiscal quarter due to the general elections, with another budget expected in February 2025. This scenario suggests that yearly expenditures must now be completed in a shorter timeframe, leading to two possible outcomes:

Meeting expenditure targets, providing a strong boost to multiple sectors.

Spending less, beating the fiscal deficit target, leading to lower inflation and potential interest rate cuts by the RBI.

Sectors in Focus

Infrastructure/Capital Goods & Railways

New infrastructure projects in Bihar and Andhra Pradesh (for Amravati) should benefit EPC players in those regions.

Allocation for new power plants is positive.

Railway allocation remains flat at Rs 2.7 lakh crore, but increased procurement targets (Wagons by 46%, Electrical locomotives by 25%) suggest higher actual expenditure.

Dedicated freight corridors will likely boost demand for rolling stock and capital goods.

Agriculture

Fertilizer subsidies for NBS and Urea remain unchanged.

The release of 109 high-yielding crop varieties should gradually boost farm income.

Reduction in BCD for aquaculture inputs is positive for exports.

Real Estate & Building Material

Removal of indexation benefits for LTCG may slow down the investment property segment.

Improved regulatory landscape for REITs and InvITs makes them more attractive.

Affordable urban housing saw a 36% increase in allocation, benefiting developers and building material companies.

Business Services

Staffing, skilling, and recruitment services could benefit significantly from ELI.

Government's expenditure of Rs 2 lakh crore over five years is a major positive.

Capital Markets

Marginally increased CG tax rates and STT could reduce trading volumes but discourage speculative trades.

SEBI's proposal for a new asset class with F&O products is beneficial medium-term.

Consumer

Increased job creation and rural allocation are positive for consumption-related sectors.

Import duty cuts on precious metals could help retailers, with higher volume sales offsetting inventory losses.

Annual tax savings of Rs 17,500 should marginally boost general consumption.

Pharma & IT: Potential Dark Horses

Pharma and IT sectors might outperform due to external factors like the recent rupee depreciation following China’s rate cut, rather than direct budget measures.

Disclaimer: The views expressed are those of the author and not necessarily those of Moneycontrol.com. Readers are advised to consult certified experts before making investment decisions.