What brokerages expect from India's union budget on Feb 1

India's federal government is expected to use next month's budget to stimulate economic growth through measures such as income tax cuts, although a significant increase in capital expenditure appears unlikely, multiple brokerages said.

India's benchmark indexes have fallen about 7% since the government's last budget announcement on July 23, 2024, on concerns about slowing economic growth, corporate earnings, U.S. trade policy and persistent foreign outflows.

The Nifty 50 and Sensex are set for their fourth straight month of losses in January, which would be their longest monthly losing streak in more than 23 years.


CONSUMPTION BOOST
Arresting cyclical slowdown in the domestic economy and preserving macroeconomic stability could be the twin pillars of the budget, Citi said.

Consumer staples and agricultural input companies should benefit from higher allocation to government schemes aimed at boosting rural incomes and a potential increase in income-tax exemption limits, according to Phillip Capital.

Fertiliser, insurance and healthcare companies could also benefit from higher fertiliser subsidies, capital infusion into state-owned insurers and a likely reduction in tax rates on life and health insurance, the brokerage said.

Any hike in welfare spending could act as a sentimental positive for cement and rural recovery, said Jefferies, betting on Bharti Airtel, Ultratech Cement and TVS Motor to benefit from such announcements.

MEANINGFUL INCOME TAX CUT
Citi and Jefferies said that any meaningful cut in income tax for individuals with annual salaries of 1 million rupees to 2 million rupees ($11,600-$23,200) could help boost demand.

Jefferies said it expects tax cuts to aid consumer discretionary demand, which would boost stocks such as Jubilant FoodWorks, Devyani International, Trent, V-Guard, Havells and Maruti Suzuki India.

JOB CREATION
Axis Securities expects the government to use the budget to bolster job creation and assist employment-generating sectors, which could boost infrastructure and consumer-centric companies.

Multiple brokerages also said that a rising focus on job creation could benefit manufacturing, construction and textile companies.

PLI BOOST FOR ELECTRONICS MANUFACTURERS
The success of production-linked incentive (PLI) schemes in select sectors, particularly electronics, could spur an expansion of the scheme to sub-components manufacturing, said Jefferies.

Companies such as Syrma SGS, Kaynes Tech and Amber Enterprises could be the key beneficiaries of such a move.

CAPEX PRESSURE ON INDUSTRIALS
The government may project a 10% growth in capital expenditure (capex) in fiscal year 2026, after an already slow growth of up to 6% in the current financial year, multiple brokerages said.

"The government capex of more than 10% would be difficult to mathematically justify amidst rising social spending pressures," said Jefferies.

Potential disappointment in capex will be a negative for engineering, procurement and construction contractors such as Larsen & Toubro and the broader industrials sector, it said.