Budget 2024: MOSL prefers PSU banks, industrials, real estate; SBI, ICICI Bank among top stock ideas

Reviewing the budget, brokerage house Motilal Oswal noted that the government did not announce any new schemes or incentives and followed the fiscal deficit consolidation path by maintaining its investment-led spending growth strategy.

In stark contrast to the market expectations of 5.3-5.4% of GDP (and MOSL forecast of 5.2 percent of GDP), the Government of India (GoI) has budgeted a fiscal deficit of 5.1 percent of GDP for FY25, implying a consolidation of 70 basis points (bp) next year. Moreover, the GoI has also lowered its deficit target for FY24 to 5.8 percent of GDP, notwithstanding the fact that the nominal GDP growth estimate for FY24 was also revised down.

“The Vote-on-Account was presented against the backdrop of a bullish macro and micro environment for India, with equity markets reaching new highs. Further, this was the last budget before the forthcoming Lok Sabha Elections in Apr-May 2024, and thus expectations of some populism were not unfounded considering the underlying weak consumption demand in the economy, especially in rural India,” stated the brokerage.

However, the budget has eschewed populism and instead adhered to the path of fiscal consolidation without making any populist announcements for any section of the society, it added.

The brokerage further pointed out that as in the recent past, the budget math appears quite credible with 10.5 percent nominal GDP growth and a 5.1 percent fiscal deficit for FY25E. This highlights the government’s intent to achieve the 4.5% fiscal deficit target committed for FY26. This will keep the 10Y yields under check and provide a conducive framework for higher private capex in the economy, it noted.

Moreover, sticking to fiscal consolidation in a year of high-stakes general elections augurs well strategically from the country’s rating perspective, even as India prepares for its inclusion in the global bond indices.

Consumption, however, has not received any push in the budget from a near-term perspective. Therefore, to that extent, it’s a dampener. Corporate earnings in Q3FY24 have once again highlighted the prevailing weak consumption demand in the economy, observed MOSL.

Strategy

Overall from an equity market perspective, the brokerage believes the budget further reinforces India’s strong macro-micro positioning in an increasingly fragile world.

“Equity markets would benefit from a long-term focus on fiscal consolidation and capex. A combination of 7 percent GDP growth and 15 percent Nifty earnings CAGR over FY24-26, supported by a stable currency and moderating inflation puts India in a quasi-goldilocks scenario. We anticipate the market to quickly discount the budget and shift focus to the trajectory of corporate earnings growth, which has remained resilient so far in 9MFY24 (albeit, witnessing some challenges with downgrades outweighing upgrades in 3QFY24). We continue to expect over 20 percent earnings growth for Nifty in FY24. Valuations for Nifty remain in line with its LPA at 19.5-20x one-year forward earnings,” forecasted the brokerage.

It prefers PSU Banks, Industrials (Capital Goods, Cement), Real Estate, Consumer Discretionary, and NBFCs, while it is ‘underweight’ on IT and Metals. MOSL also recently upgraded Energy to ‘neutral’ and downgraded Auto and Pharma to ‘neutral’ in its model portfolio revision.

Top stock ideas

Largecaps – L&T, SBI, ICICI Bank, Coal India, Titan, M&M, Gail, ITC, HCL Tech, Cipla.

Midcaps – Indian Hotels, Zomato, Godrej Property, Sobha Developers, Dalmia Bharat, Angel One, IIFL Finance, PNB Housing, Lemon Tree, Restaurant Brands Asia.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 05 Feb 2024, 02:17 PM IST