When investing ahead of the budget that is expected in July 2024, it is important to carefully assess sectors that are expected to benefit from government policies and reforms.
Industry experts anticipate a significant turnaround in the MSME and related sectors due to changes in government policies. While promising sectors such as infrastructure, banking and financial services, automobile and EVs are worth considering, investors should choose stocks based on fundamentals and those with strong growth potential that can take advantage of plausible budgetary boosts.
Budget & Sectors
Similar to how the estimated budget deficit for FY23 was lowered to 5.8 per cent of the country's GDP, down from the planned 5.9 per cent, the Centre has restated its goal of reducing the fiscal deficit to 4.5 per cent of the country's GDP by FY26. The upcoming budget is expected to move towards that goal by proposing a 70 basis points reduction to 5.1 per cent of the country's earnings for FY25. So government may not move away from its fiscal consolidation goals.
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Ravi Singh, SVP- of Retail Research, Religare Broking Ltd says railways, infrastructure, PSU and defence are sectors to bank on.
Singh says, "In the recent past we have seen many policy shifts from the Government to modernise the Indian railways. The capital allocation towards the railway sector is expected to continue in the future as well. The government's focus on capital reconstruction and achieving disinvestment targets will help PSU flourish. Also, government prioritising self-reliance in defence is expected to continue in the future too."
According to Tata Mutual Fund's equity outlook, the sectors with a positive outlook based on fundamentals include banks, capital goods, and manufacturing. The neutral sectors are pharmaceuticals and healthcare, information and Information technology. Urban consumption after significant growth in 2022 is slowing due to the impact of inflation and interest rates and thus has a negative outlook. whereas rural consumption is picking up, albeit gradually and is given a neutral outlook.
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It further said that mobiles or electronics, Pharma, EV batteries and semiconductors are themes that have the highest likely investment in the upcoming financial year with the highest PLI incentive already committed. While mobiles or electronics were tagged as export champions, the Pharma industry is likely to benefit from import substitution incentives from the government. EV batteries, semiconductors and drones are primed to be the sunrise sectors.
In summary, investors should look for companies in the above sectors that have growth potential but are reasonably priced. Rather than focusing on market trends, one should select individual companies experiencing upward revisions in earnings forecasts.
