What Should Investors Expect from Budget 2025?

It's that time of year again. The budget session of parliament will begin on 31 January and pending confirmation, the Union Budget 2025 will be presented the next day, i.e., on 1 February.

All eyes will turn to the Finance Minister, Nirmala Sitharaman. The markets will remain open on Saturday, 1 February to enable trading on budget day.

This time last year we didn't see the kind of usual frenzied anticipation from the markets because that was an interim budget due to the upcoming general elections.

This will be the second full budget of Modi 3.0 after the one in presented back in July 2024. This time around there are big expectations on many fronts. This budget is expected to have a big impact on the stocks market and the economy.

Traders in the market won't ignore the possibility of making quick profits on budget day. But what about investors? Can you look forward to some announcement or other that may give a boost to the stocks in your portfolio?

Read on...

First Things First

The budget will not change the fortunes of the stock market as a whole in one direction or another.

As an investor you should always be on the lookout for high quality stocks that are trading at reasonable valuations.

Union Budgets have a notorious reputation in the stock market for being forgotten by investors and traders on the very next day.

That said, there could be some big moves in certain segments of the market. These could be either sharp one day price moves or the start of significant long-term trends. We believe many stocks and sectors will be impacted and investors should be ready to act if necessary.

Let's dig deeper...

#1 Rural India

This should come as no surprise. As the BJP is in a coalition government without a majority on its own, it will need to please its alliance partners.

As the two major parties in the coalition are more focused on rural voters than urban, the budget could reflect this reality.

The stock market expects a significant spike in the government's rural spending. This is not a bad thing. Most of India's poor live in rural areas. Any improvement in their standard of living, will result in an increase in rural consumption.

Such policies always benefit, either directly or indirectly, companies in rural-oriented sectors. It's just a matter of finding the right stock.

The rural sectors that you should keep an eye on are - tractors, seeds, fertiliser, irrigation, and agrochemicals.

What about the stocks?

There are multiple fundamentally strong companies among the sectors mentioned above. You can keep the following on your watchlist for further evaluation.

Please note, the following are not recommendations.

• Mahindra & Mahindra (M&M)

  M&M is one of the leading tractor and auto manufacturers in India.

  After streamlining its operations in 2024, M&M is fully focused on growth. It exited non-core 15 business and unblocked funds worth 13.9 bn.

  The company is now laser-focused on its expansion plans. It has unveiled a massive investment plan of Rs 370 billion (bn) over the next 3 years.

  Any policy targeted at improving farmers' incomes will benefit M&M.

• Kaveri Seed

  Kaveri Seed engages in the production, processing, and distribution of seeds. Its products include field crops and vegetables.

  The company constantly launches new products across segments including cotton, maize, vegetables, and rice. These are backed by strong R&D.

  It has gained market share in cotton seeds in states like Gujarat, Maharashtra, and Haryana. It's a debt free, dividend paying company with stable profit margins.

  If the government pledges assistance to farmers in acquiring latest disease-resistant kinds of seeds, it will benefit Kaveri Seed.

• Coromandel International

  Coromandel International is part of the Murugappa group. The company is in the business of fertilizers, pesticides, and speciality nutrients. It's one of the leading crop protection firms in India with a diverse range of products and services.

  The management aims to make the company a complete plant nutrition solutions provider. To that end, it has also introduced a range of speciality nutrient products, including organic fertilisers.

  Fertiliser stocks will be closely watched on budget day. It's a vital part of the agricultural economy and the government will be in the spotlight as far as this sector is concerned.

#2 Urban Consumption

There are high expectations of some form of tax relief for citizens in the budget. Rumours have been flying around about tax relief for urban India, i.e., the high earners.

We won't engage in speculation but if these measures are taken, we could see a boost in consumption. This would not be surprising. In the past, tax relief has been a precursor to higher consumption. This is because citizens tend to spend their 'extra' income.

The three sectors likely to benefit from this are travel, FMCG, and home improvement. You may keep the following stocks on your watchlist.

• Interglobe Aviation Ltd (IndiGo)

  Interglobe Aviation Ltd (IndiGo) is India's largest passenger airline. It operates as a low-cost carrier. It's currently the 7^th largest airline in the world measured by daily departures and the first Indian airline to have a fleet size of 300+ aircrafts.

  Due to favourable macro-economic trends in the country such as the rise in per capita income and favourable demographics, and new travel trends, the company is well placed in the long-term.

  There has been a notable slowdown in urban consumption over the last one year. Any step taken by the government to reverse this trend will favour the travel and tourism industry. Airline stocks will be the biggest beneficiaries of this.

• ITC

  From being a one-product category company, ITC is now a company with a portfolio spanning 20 categories with over 1,500 products.

  This is due to its expansion into the FMCG sector. The company is now among India's largest in the FMCG sector.

  Recognising the rising consumer preference for natural and healthier products, alongside traditional options, the company is actively expanding its rural distribution.

  ITC is one of the biggest beneficiaries of the growth in incomes of Indians. It's presence in FMCG, cigarettes, agriculture, paper, and hotels positions the stock favourably going into the budget day.

  However, any increase in taxes on cigarettes will hit the stock hard.

• Hawkins Cooker

  Hawkins Cookers is an Indian company which manufactures pressure cookers and cookware. The company and has three manufacturing plants at Thane, Hoshiarpur, and Jaunpur. The company has historically been a beneficiary of rising incomes in India.

  It's a steady growth company with stable margins and a good history of dividend payouts. The debt on the balance sheet is negligible. The company enjoys strong cash flows.

  This company does not get the attention it deserves when investors consider home improvement stocks as a long term investment theme. The stock has been an excellent long term wealth creator.

#3 Railways

The railway sector will be on the radar on most investors. The railway theme has been hot for more than a year now. We believe these stocks have more steam in them.

However, they are almost completely dependent on the government's railway spending. This budget could bring good news. The government has big plans for the railways. There are expectations of Rs 3 trillion being allocated for the modernisation of India's rail network.

The programs could including track expansion, Vande Bharat trains, upgrading of stations, extension of the Kavach system, and high-speed rail projects.

The entire railway ecosystem could benefit from this big growth in spending. Here are some stocks to have on your watchlist.

• IRCON International

  IRCON International is a large construction company dealing with railway infrastructure such as tracks, bridges, and electrification.

  The company focuses on railway projects, highways, bridges, and other large-scale projects, both domestically and abroad.

  With a strong reputation for delivering quality projects, it's a significant player in India's railway ecosystem. The order book of the company reflects its uninterrupted participation in large projects both within and outside India.

• Rail Vikas Nigam Ltd (RVNL)

  RVNL is the executing arm of the Indian railways and takes up project management starting from conceptualisation to commissioning, including stages of design, preparation of estimates, calling and award of contracts, project and contract management, among others.

  Over the last 20 years, it has contributed to over 35% of railway doubling and more than 25% of the railway electrification done in India. It is also known for executing projects on a fast-track basis.

  The company diversified into other segments such as roads, irrigation, industrial manufacturing, and electrical works over the past and successfully secured orders from these segments as well.

• Titagarh Rail Systems

  Titagarh Rail Systems is a leading manufacturer of freight wagons and passenger coaches.

  With the budget expected to focus on enhancing the railways' rolling stock, Titagarh is well placed to secure new orders for wagons and coaches.

  The company is also a big player in the metro rail ecosystem. More funds for urban metro projects would give a significant boost to its revenue and profits.

#4 Defence

The Union Budget 2025 is expected to have a huge impact on the defence sector.

In FY25 the capital outlay for the armed forces jumped 20.3% to an all-time high of Rs 1.72 trillion. The year's budget may further accelerate modernisation spending.

We believe defence is a long term megatrend that is here to stay. If you own defence stocks, expect more incentives for defence manufacturing, localisation, R&D, etc. Many stocks could be impacted.

Defence stocks especially those in high-tech segments like sensors, radars, missiles, drones, etc will benefit in the long term.

Here are some stocks to watch out for...

• Mazagon Dock Shipbuilders

  Mazagon Dock is well known for producing submarines and warships. The order book of the company currently stands at Rs 400 bn.

  The company's current projects include stealth frigates and submarines. With spending likely to be planned for the upgrade of the Navy's submarine and development of indigenous warships, the company is expected to see an uptick in new orders.

• Hindustan Aeronautics Ltd (HAL)

  HAL is a leading player in the aviation and aerospace sector with a significant position in manufacturing fighter jets, helicopters, and other aircraft for the Indian Air Force and Navy.

  The order book of the company stands at over Rs 900 bn with ongoing production of Tejas fighter jets and advanced helicopters, such as the Light Combat Helicopter (LCH).

  The budget could focus on the Indian Air Force's pending capital acquisitions. In this case, HAL will benefit from new orders of indigenous aircraft systems.

Conclusion

Investors should not base their specific investment decisions on events like the budget. History has proven that the market forgets about the budget very quickly.

However, some decisions are important for the long term. Such decisions will have a material impact on specific stocks. Investors should carefully assess themes like rural consumption, defence, etc, and the stocks to benefit the most.

Investing in stocks that receive a boost in the budget could be profitable in the short term too. But you should exercise a lot of caution here.

The rules of long term investing don't change just because of the budget. You will still need to do your due diligence on any stock before investing in it. Also, pay attention to corporate governance when conducting your due diligence before investing in any stock.

Happy investing.

Disclaimer: This article is for education purposes only. It is not a recommendation and should not be treated as such. Learn more about our recommendation services here...