As the Union Budget 2024 comes near, the Indian stock market is enthusiastic—currently, the Nifty 50 stands at 24,800.85 and the Sensex at 81,343.46. Market sentiment is mixed, with expectations high on key policy announcements that could shape the investment scenario. The following are some predictions that are most expected and hoped for. The budget for 2024 is expected to increase social sector spending, particularly in rural welfare programs. Inflation, stagnant wages, and monsoons have made the trend sluggish, impacting FMCG Companies' bottom line. This anticipated monetary change can improve rural incomes and product demand. Companies that expand their product offerings in voluntary categories could see dramatic gains. Over the last year, several states have enhanced their budgets for welfare programs, including cash transfers to farmers and farm loan waivers, which could translate into higher rural consumption. Due to their defensive nature, FMCG stocks have historically shown resilience in bearish markets. An upward mark in rural demand can trigger a bullish trend, making these particular stocks desirable for long-term investment. Investors can consider blue-chip large-cap consumer staples players like Dabur India, Hindustan Unilever, and Nestle India. Beverage and discretionary categories are also expected to outperform, making companies like Nestle and Jyothy Labs promising investments and leading revenue growth. Hindustan Unilever could see its stock price rise from its current ₹2,730.30 to ₹2,900 post-budget, while Dabur India may climb from ₹644.70 to ₹680. Nestle India: Trading at ₹2622.80, potentially increasing to ₹3000 driven by increased rural demand. A significant increase in budget allocation towards social infrastructure is also expected, aimed at improving rural connectivity. These improvements are important for reducing managerial costs and enhancing market access for FMCG companies. Stocks such as healthcare (Sun Pharmaceuticals, Dr Reddy's Labs), education (Career Point), and rural-focused companies could benefit from this increased expenditure. Larsen & Toubro (L & T) could rise from ₹3,647 to ₹3,800. Investors should look for companies with solid fundamentals and a significant rural market presence. ITC: The stock could rise from ₹470.5 to ₹520 with enhanced rural infrastructure. Indian export prices have climbed owing to a new 20% duty on primary goods, an initiative designed to address and control inflation. Moreover, expenses have increased due to the extended logistics chain following the creation of National Cooperative Exports Ltd (NCEL) last year. To combat elevated food prices due to poor harvests over the last two years, India has adopted various measures. These include export bans on the overseas sale of wheat, fragmented rice, certain white rice types, sugar, and, more recently, onions. Some limitations have been in place since 2022, with the onion restriction being one of the latest. The potential removal of the export ban on agricultural commodities is anticipated to open new markets for Indian farmers. Lifting the bans can stabilise food inflation and reduce raw material costs for consumer staples. This policy shift would enable companies to lower prices without hurting margins and enhancing profitability, thereby boosting demand. Key beneficiaries of this move would include agro-based companies such as Godrej Agrovet and Rallis India, with Agrovet increasing from ₹824 to ₹890 at a 52-week high. Additionally, this could have a downstream effect, benefiting consumer staples and food processing companies. The reduction of corporate tax rates in the past has positively impacted market sentiment and company profits. A further reduction of 1-2 per cent is a long-shot expectation that could enhance the profitability of companies. Lower corporate taxes increase net earnings, providing companies more capital for reinvestment and expansion. This tax relief could benefit large-cap companies in IT, manufacturing, and financial services. IT giants like Tech Mahindra and TCS would capitalise the most if tax relief were implemented. TCS could see its stock price appreciate from ₹4,297.20 to ₹4,400, and Tech Mahindra from ₹1,540 to ₹1,600 at its peak. Historical data indicates that corporate tax cuts typically elicit positive responses from the market, enhancing earnings per share (EPS) and stock valuations. Siemens' manufacturing stock and financial services like HDFC Bank and ICICI Bank could see positive momentum, too. Investors should consider adding high-growth, high-margin companies to their portfolios to capitalise on the increased profitability. Investors are keenly anticipating capital gains tax regime reforms and hoping for a rationalisation. Simplifying the structure with a uniform holding period and standard rates across asset classes could encourage higher compliance and boost investor sentiment. After the move, higher participation in equity markets, increased liquidity, and benefits for mutual funds and long-term holders are just some perks. Currently, selling listed securities after a year incurs a 10% LTCG tax on gains exceeding ₹1 lakh. The potential for abolishing the Long-Term Capital Gains (LTCG) tax or introducing an indexation of 20 per cent for all categories would be impactful. The government's collection from Securities Transaction Tax (STT) in FY 2023-24 was Rs 9,72,224 crore, indicating a substantial contribution to the exchequer. However, collections from LTCG tax are significantly lower, suggesting room for potential adjustments. Investors should closely monitor announcements regarding capital gains tax reforms. If changes are implemented, then mutual funds, especially debt-oriented funds, and direct equity investments could see increased interest and inflows. Companies with high market capitalization, like Reliance Industries and HDFC, could see increased buying interest. The Indian market has reacted differently to the Union Budget announcements. Over the past five years, the Sensex and Nifty have experienced mixed trends and corrections post-budget, reflecting the market's sensitivity to fiscal policies: During Budget Day last year, the BSE Sensex experienced a significant increase of over 1,100 points, reaching a peak of 60,773.44. Similarly, the NSE Nifty 50 surpassed the 17,970 mark. However, shortly after Sitharaman concluded her speech, the indices declined rapidly, dropping by nearly 1%. The market is facing a bullish phase where the crucial indices are showing an upward trend driven by positive earnings reports and powerful economic indicators. Nonetheless, the uncertainties around the budget announcement keep the investors alert and careful. All the investors might want to take a diversified approach, seeing the budget expectations. An eye should be kept on the fundamental indicators such as the Price-to-Earnings (P/E) ratio, Earnings Per Share (EPS), and historical price movements, which can provide insights into potential stock performance post-budget. The Budget has a significant potential impact on various sectors. If the expected policy changes materialise, investing in certain stocks can be quite rewarding for the investors. Therefore, it is important for investors to stay updated and seek advice from financial experts. This will help them customise their investment plans accordingly and further be aware of the risk factors and the current market climate. Remember, all investments come with risks and market fluctuations, so it's wise to proceed cautiously. 1. Investment in FMCG Companies
2. Removal of Export Ban on Agricultural Commodities
3. Reduction in Corporate Tax Rates
4. Reforms in Capital Gains Tax
20 Jul 2024
Visakha Bajaj
