00:00Budget 2025 is one of the most important events of this year and on 1st February, Finance
00:14Minister Nirmala Sitharaman will present the budget in the Parliament.
00:17There is a lot of confusion in the stock market and investors are hoping to get some good
00:22news for some key sectors.
00:24Hello and welcome.
00:25My name is Shruti Sarkar and you are watching GoodReturns and in this future-focused Budget
00:312025 episode, we will talk to Saur Gupta, Senior Fund Manager, Equities Bajaj FinServ.
00:39Hello, Saur.
00:40Hi, Shruti.
00:41Everyone wants to know what are the expectations of the budget, but the question for you is
00:47what are the top sectors that we should watch ahead of the budget 2025?
00:54Sure, Shruti.
00:55First of all, I would like to thank you for inviting me to the show.
01:00This budget is very important because it will be the first full budget of this government
01:07which has been selected for the third time.
01:10So, it will set a lot of things for what the government's plans will be in the next five
01:15years.
01:16As you said, there has been a slight slowdown in the economy.
01:21So, everyone's eyes are on what the government is doing to tackle this slowdown.
01:26This will be the most important thing.
01:28Till now, in the last 10 years, the focus of the union government has always been towards
01:33CAPEX, towards capital expenditure.
01:36And they are safe from demand and social spending, which is very good for the long term.
01:41But this time, because there is a slight slowdown in the near term, we will have to see what
01:46the government is doing for the consumption push in the budget.
01:50So, there are two sectors that we think you need to pay a lot of attention to, on which
01:54some things will come.
01:56One is capital expenditure, how much the government grows its CAPEX.
02:00So, there is a need to pay attention to order book driven businesses.
02:03And on the other hand, if the government tries to boost consumption, then we like consumption
02:07as a pack very much.
02:09So, there we need to see where the allocations are good and which companies can benefit from
02:14government support.
02:16So, these two things are the primary focus of the two sectors.
02:19And the rest, event specific, news specific, different sectors will react differently.
02:24I would want to know that what do you think that the market sentiment is about the budget?
02:29Usually, we make some presumptions that the budget will be like this or like that.
02:34But what is the situation in the market?
02:36What impact can the budget have in the market?
02:38Last time, when the budget came in July, the market was a little surprised because the
02:43capital gains tax was increased.
02:45And the government did not allocate as much to spend on capital expenditure as the market
02:50expected.
02:51Now, the main expectation of the market is that how the government finances will move
02:58is very important, as I responded to you in the previous question.
03:02I think that will set the tone of the market.
03:05So, the expectation of the market is quite high because the near-term slowdown in consumption
03:11and the companies have highlighted that there is a sluggishness in the urban slowdown,
03:16while the rural is doing very well.
03:18So, government spending is such a thing that determines a lot of things in our country.
03:23So, if the government's spending comes towards consumption, then the revival will come soon
03:27and markets will love that.
03:29There is a lot of focus on taxes.
03:31There is a lot of fuss about income tax, especially on social media.
03:37Government has to take care of finances.
03:39So, it is a sure thing that the government cannot make everyone happy.
03:43But yes, if spending is on the consumption side, then growth will pick up soon in the
03:47near term.
03:48You talked about sluggish growth and also about tax relief, which is expected.
03:54What is the expectation that what kind of relief can we get for the middle-class corporate
04:03people, according to you?
04:05So, if you look at urban inflation, there are anecdotals.
04:12I am not talking about CPI data.
04:14But according to the anecdotals, the rental cost, food cost has increased rapidly in the
04:19last 6 months and a year.
04:21And because there is no relief in taxes and wages, high growth has also been low,
04:27there is clearly pressure on household budgets and you can see that in the consumption patterns.
04:32So, if there is relief in the income tax, the slabs of the income tax, the government
04:37thinks that they should be increased so that more money comes into the hands of the people
04:41and the government can spend, people can spend, then that will be an immediate relief.
04:46And staple companies, consumer companies or low-ticket consumption items, those companies
04:54should benefit from the immediate effect as soon as more money comes into the hands of
04:57the people.
04:58So, the ultimate aim is that if the government decides that people should have more money
05:02in their hands, especially urban middle-class salaried, then that will push the economy
05:08on the consumption side and should be helpful.
05:10Coming back again to the stock market, are small-cap and mid-cap stocks poised for growth
05:16post-budget 2025, in your view?
05:18Budget is essentially a journey, a direction.
05:22So, we should pay more attention to direction than allocation in the budget.
05:27In the last 3 years, especially till last June and in the previous 3 years, clearly,
05:33the spending pattern of the government was such that a lot of capital goods, defense
05:38and all these sectors' companies did very well.
05:40Their orders book grew very well in mid-caps and small-caps.
05:44Solar, windmill power and all these were the focus of the government.
05:47So, now we will have to see how the announcements of the government will be in the next 3-5 years.
05:52If I talk purely about mid- and small-cap, then the valuation comfort is less there.
05:58A lot of good news has been factored.
06:01A lot of stocks have run.
06:03Those stocks have outperformed large-caps.
06:05In a slowing economy, generally, mid-cap and small-cap is not a very safe place to be.
06:11But we will have to see if the government can bring back growth very quickly.
06:15Or the government's plan to revive growth through CAPEX is a bit back-ended.
06:21So, in the near term, it will be a bit sluggish.
06:23In such an environment, mid-cap and small-cap may not do so well.
06:26But if the government takes some steps to revive growth quickly,
06:30nominal GDP growth rate quickly crosses the double digit,
06:34then you will see that the earnings of mid-cap and small-cap will be upgraded and may not be good again.
06:38So, we will have to see that.
06:40But overall, if I consider the budget to be neutral,
06:45then large-caps are better placed than mid-cap and small-cap given the risk-reward.
06:50Sir, you spoke about capital gain tax changes in the previous budget.
06:57What is the expectation for this budget on that?
07:01The expectation is always that the government should not increase taxes.
07:05But the fact is that the government will have to take care of its finances.
07:10The government gets money from one side and has to spend it on the other.
07:14So, we will have to see what the government views on taxes.
07:18In July, they increased it.
07:20So, we will have to see if they increase it again or not.
07:23I feel that if not this time, then...
07:26Directionally, capital gains tax will gradually increase in our country.
07:31Maybe not this time.
07:32But we need to see that.
07:34The government can also make changes in STT.
07:37If you see, a large part of the government's revenue pool has started coming from capital gains and STT.
07:42So, the government will ensure that their collection pool remains.
07:46Because they have to spend a lot for public welfare.
07:49So, I am not expecting a relief at least.
07:52There will definitely not be a cut.
07:54Maybe they should not increase it this time.
07:56Because people's market returns are not high.
07:59And maybe there will be a little pressure that people have made a lot of noise on taxes.
08:03The expectation is that taxes should not be increased anymore.
08:06Right. Let's keep our fingers crossed.
08:09Moving on to FDIs.
08:12Guys, any boost to the FDIs you expect after the budget is announced?
08:17Shruti, the budget has become such that a lot of decisions are outside the budget.
08:25Like changing the norms of FDI.
08:28Or announcing a reform for FDI.
08:31For that matter, even the rates of GST.
08:33Now, they are not decided in the union budget.
08:35So, I don't think there will be any changes in FDI due to the budget.
08:40If the levels of FDIs are to change in any sector.
08:44So, that will not be part of the finance bill.
08:47I think it will be presented separately.
08:49And it will be discussed separately in the parliament.
08:52But it will not be part of the budget.
08:54A lot of things are outside the budget.
08:56We spoke about the stock market.
08:58We also spoke about capital gains, tax, etc.
09:01I have one question for you which is slightly different.
09:05Our inflation is slightly above 5%.
09:09Relatively high.
09:10Growth is slowing, like you said.
09:12And our repo rate is also above 6.5%.
09:16So, overall in this cycle.
09:20What do you think the government will push so that there is a balance to it?
09:28Because we are expecting that Trump is taking the oath today.
09:34His inauguration day.
09:36And maybe a lot of tariffs are coming on China.
09:40Things may or may not go well.
09:43So, for this, is India as a country ready?
09:47There is no problem of being ready.
09:51I think we are very well ready.
09:53And the good thing is that India's positioning is not like China.
09:58It seems that China will hit Mexico more.
10:01We export more services than goods.
10:04So, we don't think India has a big problem in all this.
10:07We need to add one more variable.
10:11There is a lot of strength in the US dollar.
10:14Because of which there is a lot of pressure in the currency.
10:16So, the monetary policy which is due in February.
10:19And the budget which will decide the fiscal policy.
10:22Both these things become very important.
10:24I think there is a very tightrope walk.
10:27That the government and the new governor of the RBI have to do.
10:31They have to balance inflation.
10:33They have to balance growth.
10:35And third, they have to balance the rupee also.
10:37So, this is a trilemma which they have to resolve together.
10:41I think they will be saved from spending a lot.
10:44I don't think they will give a lot of headroom in the fiscal.
10:47They will go in the direction of the Fiscal Tightness Responsibility Bill, FRBM.
10:52So, they won't leave a lot of room in the fiscal.
10:54They will do the expansion as soon as the economic growth comes.
10:58Because it can put pressure on the rupee.
11:00So, we think there will be a reallocation of resources in those things.
11:04Maybe the government will try to cut the long-term spending and boost the near-term demand.
11:09As much as there is headroom.
11:11But it won't be a good thing to do a lot of fiscal expansion and grow.
11:15And maybe the government won't do that.
11:16Before I let you go, I have one final question.
11:20What are your pre-budget 2025 stock picks?
11:25And which sectors will likely benefit the most post-budget according to you?
11:32Shruti, our sector positioning is a little longer term.
11:38Maybe it is not related to the budget.
11:41Yes, we are quite positive on consumption as a space.
11:45Because we feel that the levels have reached a point where the government will have to help in consumption.
11:52Especially in the urban consumption side.
11:54Rural consumption, mind you, is picking up very well in the last 3 years.
11:59For the first time, there is a good cyclical uptick.
12:01And consumption stocks are available at valuations which we have not seen in the last 5 years.
12:07Attractive valuation plus triggers coming.
12:09So, the budget can be a trigger where the consumption stocks get a boost if the government spends.
12:14So, we are positive on that sector.
12:16The second sector we are positive on is pharma.
12:19Pharma is not affected by the budget of India or US tariffs.
12:25Some strong demand scenarios are being built for some Indian companies in pharma.
12:30So, we like the pharma sector a lot.
12:33We feel that things are fine there.
12:35The third sector where we are slowly becoming more constructive is IT services.
12:40The way things are happening in the US, the demand for Indian IT companies will increase.
12:46And their margins will get support from the rupee depreciation.
12:49So, that is also a sector that we are liking.
12:51So, for now, we feel that these 3 sectors are fine.
12:54And then we will have to see what is the positioning of China in the tariff war.
12:58What happens to the metal stocks because of that.
13:00But we expect that the call on consumption of overweight should get a boost from the pure pure budget.
13:07And that is a sector one should watch.
13:09And consumption is a very wide sector.
13:11There are staples, autos, QSR, food, everything.
13:16So, I feel that the budget should help in that space.
13:20Very nice, Saurabh.
13:21It was amazing talking to you today.
13:23That was Saurabh Gupta, Senior Fund Manager, Equities, Bajaj Pinsar.
13:28Thank you viewers for watching us.
13:30Thank you, Saurabh.
13:32Thank you, Shruti.
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