Published on: January 29, 2025
The Union Budget is one of the most anticipated events in India’s financial calendar. It outlines the government’s fiscal policies, spending priorities, and tax reforms, which can significantly impact various sectors of the economy. For investors, the budget presents both opportunities and risks, as it often leads to sector-specific announcements that can influence stock prices. As the next Union Budget approaches, here are the key sectors to keep an eye on in the Indian stock market:
1. Infrastructure and Capital Goods
The infrastructure sector is often a focal point of the Union Budget, as the government aims to boost economic growth through increased spending on roads, railways, ports, and urban development. Investors should watch for announcements related to:
– Increased allocation for infrastructure projects.
– Policies promoting public-private partnerships (PPPs).
– Incentives for green energy infrastructure, such as solar and wind power.
Stocks of companies in construction, engineering, and capital goods are likely to benefit from higher government spending.
2. Banking and Financial Services
The banking sector is sensitive to budget announcements, particularly those related to fiscal deficit, borrowing programs, and credit growth. Key factors to monitor include:
– Measures to address non-performing assets (NPAs).
– Support for rural credit and MSMEs (Micro, Small, and Medium Enterprises).
– Changes in capital gains tax or dividend distribution tax, which could impact investor sentiment.
Based on budget announcements, public sector banks (PSBs) and non-banking financial companies (NBFCs) could see movement.
3. Automobiles
The automobile sector is a key driver of India’s manufacturing economy. Investors should watch for:
– Changes in GST rates for vehicles.
– Incentives for electric vehicles (EVs), such as subsidies or tax benefits.
– Increased rural spending, which could boost demand for two-wheelers and tractors.
EV-focused companies and traditional automakers with strong EV portfolios could see significant interest.
4. Information Technology (IT)
The IT sector is a major contributor to India’s exports and GDP. While the budget less directly impacts it, investors should watch for:
– Changes in tax policies affecting software exports.
– Increased allocation for digital infrastructure and cybersecurity.
– Incentives for startups and technology innovation.
Large-cap IT companies and tech startups could see positive sentiment if the budget aligns with digital transformation goals.
5. Renewable Energy
With India’s commitment to achieving net-zero emissions by 2070, the renewable energy sector is likely to receive attention in the budget. Key announcements to look for include:
– Subsidies and incentives for solar, wind, and hydrogen energy projects.
– Increased allocation for green energy initiatives.
– Policies promoting energy storage and electric vehicle infrastructure.
Companies in the renewable energy space, including solar panel manufacturers and EV battery makers, could see a boost.
6. Agriculture and FMCG
The agriculture sector is critical to India’s economy, and the budget often includes measures to support farmers and rural development. Investors should watch for:
– Increased allocation for rural infrastructure and irrigation projects.
– Subsidies for fertilisers and seeds.
– Changes in minimum support prices (MSPs) for crops.
FMCG companies with a strong rural presence could benefit from higher rural disposable incomes.
7. Defence
The defence sector has been a focus area for the government, with an emphasis on self-reliance (Atmanirbhar Bharat). Key budget announcements to watch include:
– Increased defence capital expenditure.
– Policies promoting domestic defence manufacturing.
– Incentives for defence exports.
Defence PSUs and private companies in the sector could see positive momentum.
8. Real Estate and Housing
The real estate sector is closely tied to government policies on affordable housing and infrastructure development. Investors should monitor:
– Tax benefits for homebuyers, such as increased deductions on home loan interest.
– Increased allocation for affordable housing schemes.
– Measures to boost liquidity for real estate developers.
Real estate companies and housing finance firms could benefit from these measures.
9. Tourism and Hospitality
The tourism sector, which was severely impacted by the pandemic, may receive support in the budget. Key announcements to watch include:
– Incentives for domestic tourism.
– Infrastructure development for tourist destinations.
– Tax benefits for hospitality businesses.
Hotels, travel companies, and related businesses could see a revival if the budget includes supportive measures.
Most of the sectors are highlighted from the broader view but what’s actionable?
To get the actionable, Definedge is coming up with the Union Budget webinar by Prashant Shah. The webinar is FREE for Definedge Securities customers. Enroll here