Budget 2025 Expectations: 'Budget May Not...' - Jefferies India Equity Outlook

The upcoming government budget for Fiscal Year 2025, is expected to focus on fiscal consolidation and lowering the fiscal deficit , as per investment banking firm, Jefferies 2025 Outlook report.  However, lowering fiscal deficit may not significantly boost investor sentiment in the short term.

Budget 2025: Jefeerie's Analysis

1. Fiscal Consolidation: 

Government wants fiscal consolidation with a fiscal deficit of 4.4 per cent of GDP by FY26. This reduces the room for an increase in government spending, and a lower expenditure growth in FY25. "The weak Govt expenditure growth in 1HFY25 will drive a higher growth in 2HFY25 but that improvement will be short-lived." The report said.

2. Slow Capex Growth: 

The fiscal year 2025 is expected to have much slower government capital expenditure (Capex) than in previous years. In FY 25, the capex is expected to grow at around 5 to 7 per cent. However, the growth will be higher in FY 26, "We expect the govt. capex budget growth at ~10% YoY for FY26E." Jefferies said.

3. Slow Revenue Growth in FY26: 

The slow growth is partly due to RBI 's reduction in dividends (from Rs., 2.1 trillion in FY25 to around Rs. 1.5 trillion in FY26.). "The tax revenue growth, particularly for income taxes (26% cagr over FY21-25E) has a relatively high base. Nonetheless, we assume tax revenue growth at ~10%, (vs. 11% in FY25E."

4. Government increase capital gains tax:

After an increase in July 2024, the government could raise the rate of short-term capital gains tax could rise to as high as 30 per cent, plus a surcharge. It will then equalise the rate of taxation across other asset classes viz. debt,
gold and property. "If this happens, the sentiments of the equity market investors will be impacted," Jefferies said

Budget 2025: Jefeerie's Stock Market Advice

"Overall, equity markets could give a buying opportunity post-budget." the report said. Jefferies preferred picks to play the capex cycle story would be through housing plays (Godrej properties, Lodha), industrials play (Amber, Siemens, Thermax), Power (JSW energy, Coal), and some allied plays viz. Polycab, Ultratech, etc. We prefer these over the Govt capex plays including L&T & defense, etc.