With the budget putting more money into the hands of people to boost consumption and increasing foreign direct investment in insurance, certain consumer-oriented sectors, such as FMCG, auto, as well as manufacturing are expected to do well, but think before investing
The most anticipated event in recent months is now behind us. The stock market has been under pressure due to higher valuations and lower earnings, and economic growth for quite some time now. After the US Presidential election, all eyes were on the Budget announcement; and now that it’s out, the reaction has been mixed.
The major indices, Nifty and Sensex closed flat. However, some consumer-oriented, sector indices cheered the Budget announcement.
On the key macroeconomic front, the government has outperformed its own estimates. The fiscal deficit for the financial year (FY) 2025 is 4.8 per cent, against the estimated 4.9 per cent. For the coming year, the government has projected it to be around 4.4 per cent.
On the other hand, Union Minister of Finance, Nirmala Sitharaman, announced in her Budget Speech that taxpayers earning income up to Rs 12 lakh will not have to pay any income tax. These twin announcements bodes well for the overall economy.
Says Vishal Kapoor, CEO, Bandhan Mutual Fund: “While maintaining the glide path towards fiscal consolidation, the reduction in income tax puts more disposable income in the hands of taxpayers, stimulating domestic household consumption and ensuring more savings are channeled to productive financial assets that facilitate wealth building, thus helping more savers become investors.”
The major beneficiary of the tax rate cut would be consumer-oriented sectors such as fast-moving consumer goods (FMCG), auto, and real estate, which could see decent interest
Other experts also share the same view. “It was critical in today’s global environment that the path for fiscal consolidation be maintained, and that has been delivered. The fiscal deficit is slated to come down to 4.4 per cent of the gross domestic product (GDP), and this reduction is based on credible assumptions regarding expenditure and revenue,” says Ashish Gupta, chief investment officer (CIO), Axis Mutual Fund.
He says that the finance minister has been responsible in addressing two key areas that have been dragging growth. On the consumption side, the tax rate cuts on income will turn the tide.
We give a lowdown of how the key sectors will get the affected by the Budget announcements.
Insurance: One of the key highlight of this year’s Budget announcement was the government’s move to increase the foreign direct investment (FDI) limit in insurance to 100 per cent from the existing 74 per cent.
This opens the door for foreign players to enter the low-penetrated Indian insurance market. This will, in turn, boost the insurance sector.
Says Sanjay Agarwal, senior director, CareEdge Ratings, a ratings agency: “In pursuit of insurance for all, the enhanced FDI limit in insurance to 100 per cent from 74 per cent would provide necessary growth capital for the industry. It would also encourage more global players to look towards the country. Long-term funding remains a key requirement for the capex, which the insurance sector addresses.”
This is the third-time when the government liberalised FDI in insurance. The first was in 2015 when the FDI limit was limited to 49 per cent, and the second time in 2021, when it was raised to 74 per cent. So, far the sector has received Rs 54,000 crore in FDI.
Incidentally, all the listed insurers closed in the red. The reason is that 100 per cent FDI will pave the way for more foreign insurers to explore the domestic market given India’s huge population and low insurance penetration. This will lead to intense competition among existing players and could dent their business.
On the flip side, with the reduction in tax rate, less number of people will prefer to opt for the old tax regime which allows tax rebate under Section 80C of the Income-tax Act, 1961 for insurance premium and other tax-saving instruments.
Consumption: The major beneficiary of the tax rate cut would be consumer-oriented sectors such as fast-moving consumer goods (FMCG), auto, and real estate. These sectors saw decent buying interest, in response to the relief measures announced in the Budget.
More money in the hands of people bodes well for the FMCG sector which was reeling from lower demand. The auto sector will benefit from the tax rate cut. Higher import duties imposed to promote domestic auto part production bodes well for domestic manufacturers and ancilliaries.
Being consumption-driven, the food and beverages sector is sector is likely to benefit from an increase in people’s savings capacity and consumption habits.
Banking And Financial Services: This is another sector that stands to benefit from the Budget. The Budget increased the tax deduction at source (TDS) limit for senior citizens from Rs 50,000 to Rs 1 lakh to help deposit mobilisation and support banks’ credit to deposit (C/D) ratio. Senior citizens hold over 38 per cent share of the individual deposits as of March 2024.
Infrastructure: The response has been neutral, as the Budget made no substantial increase in allocation. However, to promote investment, the Budget extended the date of making investment in Sovereign Wealth Funds and Pension Funds by five more years, to March 31, 2030.
Defence: The allocation decreased from Rs 6.22 lakh crore in 2024-25 to Rs 4.91 lakh crore in 2025-26.
Don’t rush to invest blindly. The budget may give boost to some sectors, but you should be careful while choosing stocks. Not all stocks within a sector will help you get rich, but few selected ones might. So, do your due diligence on the company fundamentals and management before making your investment.
kundan@outlookindia.com