Overall, the broad themes from the interim Budget remained unchanged. The Union budget 2024-25 focused on infrastructure, fiscal consolidation, job creation, MSMEs, women, and agricultural support.
Broadly speaking, there were six key differences:
1) as expected, the GoI increased its dividend income from the financial institutions (including the RBI) by Rs 1.3 trillion in FY25.With broadly unchanged gross taxes and non-debt capital receipts, the GoI’s total receipts have been revised up by Rs 1.3 trillion.
2) About 57% of these additional resources have been used to reduce fiscal deficit (by Rs 722 billion), while the remaining 43% (Rs 547 billion) have been used to increase total spending
3) Within total spending, capital spending has been kept unchanged at Rs 11.11 trillion, implying that revenue spending has been raised by Rs 547 billion.
4) subsidies and grants to states/UTs have seen an increase of Rs 187 billion and Rs 473 billion, respectively, while interest expenditure has been revised down by Rs 275 billion.
5) Within capital spending, while loans & advances to states have been increased by Rs 209 billion, the Center’s capital outlays have been reduced by the same amount.
6) Lastly, with a lower deficit, the GoI has revised down its net market borrowings (including treasury bills) by Rs 1.1 trillion and NSSF financing by Rs 460 billion, a part of which has been funded by the drawdown of its cash balances.
The nominal GDP is likely to grow at 10.5% in FY25. The government continued to focus on fiscal consolidation and utilized the extra bounty from the RBI dividend to reduce the fiscal deficit from 5.1% of GDP in the Interim Budget to 4.9% of GDP in FY25BE and reiterated its commitment to achieve the 4.5% fiscal deficit target by FY26.
This augurs well for India’s already healthy macro backdrop and should help keep the 10-year yields under check. With markets at a new high, the budget further bolsters India’s strong macromicro positioning amid a fragile world economy.
The combination of ~7% GDP growth and ~15% Nifty earnings CAGR in FY24-26, stable currency, moderating inflation, and buoyant retail participation may keep sentiments strong.
Overall, despite having additional resources, the GoI’s ability to resist any major boost to consumption is highly commendable. Nearly 60% of the additional resources (mainly from RBI dividends) are allocated to reducing the fiscal deficit, while the rest is utilized to enhance spending (mainly through transfers to states).
Further, considering that the GoI has budgeted a fiscal deficit of 4.9% of GDP for FY25 (after surpassing its target in FY24), achieving the target of 4.5% of GDP in FY26 appears feasible.
This clearly demonstrates the GoI’s strong commitment to long-term macroeconomic stability, even if it means sacrificing short-term growth.
LIC Housing Finance: Buy | LTP: Rs 791 | Target: Rs 930| Upside: 17%
Over the last four to five quarters, LICHF’s earnings predictability has improved, with fewer surprises on asset quality, credit costs, and operating expenses.
We expect LICHF to deliver stronger loan growth over FY25-26, which can offset NIM compression. The company reported a PAT growth of ~65% YoY in FY24.
Against this base, we forecast only ~4% PAT CAGR over FY24-26. However, we expect this to translate into an RoE of 1.6%/14% in FY26.
LICHF has also created alternate sourcing channels such as Direct Marketing Executives (DME) and has even tied-up with a few lead management companies.
Dabur: Buy | LTP: Rs 632 | Target: Rs 700 | Upside: 10%
Dabur has achieved the remarkable feat of becoming a leading player in the oral care market across Odisha, Karnataka and Andhra Pradesh this reflects Dabur’s strong market presence. Its well- managed volume trajectory and effective price adjustment have contributed to revenue growth.
The operating margin also has scope for improvement. Dabur’s international business has demonstrated impressive double digit growth.
Dabur expanded its rural coverage this positions the company advantageously as a leader in reaching rural consumers, a segment with significant growth potential.
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)