9 Stocks from 3 Sectors to Watch Out for in Budget 2025

The Union Budget 2025 will be upon us this Saturday, 1st February. All eyes will be on the Finance Minister Nirmala Sitharaman.

There are huge expectations from the budget this time from many segments of society. And the stock market is no exception to this.

Dalal Street has a list of demands this time like it always does. But which of these will actually make it into the budget? Will the government take a favourable view towards investors and traders? Or will the budget contain something that the market does not like.

In this editorial, we will explore 9 stocks from 3 sectors that could be in the spotlight on budget day . These stocks should be on your watchlist.

#1 Defence

This should be a no brainer for investors. Defence stocks will be in the spotlight when the Finance Minister makes her speech in Parliament. And investors should have these stocks on their watchlists.

In 2025, we can pray that the global geopolitical situation gets better. But as investors, there is enough to keep a watch on. Especially on India's preparedness with respect to defence supplies and ability to indigenously manufacture hi-tech defence armaments.

The defence ministry recently declared that 2025 will be the 'year of reforms' for Indian defence. This means there could be massive changes in the sector, ensuring better availability of raw materials, growth in order books, more private participation etc.

This year's budget could take that process forward.

Historically, India relied heavily on foreign countries for its defence needs. About 65-70% of defence equipment were imported until 2018.

However, this landscape has dramatically shifted, with around 65% of defence equipment now manufactured within India. This transformation reflects the country's commitment to self-reliance.

Moreover, the strength of India's defence industrial base, which comprises 16 defence PSUs, several private conglomerates like the Tatas and L&T, over 430 licensed companies, and approximately 16,000 MSMEs has become robust.

In 2024, 21% of India's defence production came from the private sector and this share is set to go up.

Consequently, the annual defence production is expected to cross the target of Rs 1.75 trillion (tn) by the end of FY25. The aspiration is to achieve Rs 3 trillion worth of defence production by 2029. This would solidify India's position as a global defence manufacturing hub.

India's defence exports have reached an all-time high, surging from Rs 6.8 bn in financial year 2014 to Rs 210 bn in FY24. This remarkable growth of over 30 times in export value over the past decade shows India's defence sector's resilience to volatilities in domestic defence expenditure.

Here are some stocks to have on your watchlist.

• Bharat Dynamics

  Bharat Dynamics has been powering India's defence ambitions, manufacturing guided missiles and allied systems for the armed forces. The company's missile capabilities include production, life-cycle support, and refurbishment.

  The pipeline looks promising, with an estimated Rs 200 bn in new orders over the next two to three years. Surface-to-air missiles and anti-tank guided missiles (ATGMs) are leading the charge.

  Bharat Dynamics is also diversifying, aiming to expand into warhead manufacturing and even products for space applications, opening up entirely new revenue streams.

  The company's focus on indigenisation is already paying dividends, with cost savings and reduced import dependency making it more competitive in the defence landscape.

• 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).

  Looking ahead, HAL expects orders worth Rs 1.6-1.7 tn over the next three years. Its robust capex plan of Rs 30 bn annually through FY30 aims to expand manufacturing lines and enhance R&D capabilities.

  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.

• 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.

  Also, with a Rs 30 bn investment planned over the next 3-4 years, Mazagon Dock is aiming to expand its production capacity to handle larger and more complex military vessels. This is supported by the company's free cash reserves of Rs 40 bn, ensuring financial stability for these ventures.

#2 Seeds and Fertilizers

As the BJP is in a coalition government without a majority on its own, it will need to please its alliance partners. The two major parties in the coalition are more focused on rural voters than urban. So, 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 two major rural sectors that you should keep an eye on are seeds and fertiliser.

Here are some stocks to have on your watchlist.

• Deepak Fertilisers

  Deepak Fertilisers and Petrochemicals is engaged in manufacturing fertilisers, industrial chemicals, bulk and speciality fertilisers, and technical ammonium nitrate. It also offers agri services such as farming diagnostics and solutions.

  The company is the largest manufacturer of nitric acid and the only manufacturer of prilled and medical grade ammonium nitrate in India. It has over 40% market share in the technical ammonium nitrate (TAN) market in India.

  The company has invested Rs 19.5 bn in capex on a brownfield nitric acid plant. It also commissioned greenfield ammonium plant recently. It's also investing in the crop protection business to ensure steady growth in this segment.

  The Indian government's robust policy support via initiatives like the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) as well as a substantial Rs 1.64 tn subsidy budget, is a major factor fuelling the growth of the fertilizer industry.

  The fertiliser sector is poised for structural growth, driven by an emphasis towards food security for a growing population and demands for better food quality and Deepak Fertilisers is bound to benefit.

• 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.

#3 Railways

Given the anticipated increase in railway capex in the upcoming Union Budget 2025, you should have these stocks on your watchlist.

The government's strong focus on railway infrastructure development, like the dedicated freight corridors, Vande Bharat trains, urban metros, high-speed rail, etc., provides a favourable environment for these companies.

The market expects the Indian Railway budget to see a Rs 3 trillion allocation for the modernization of India's rail network, including track expansion, 200 Vande Bharat trains by 2025, and the upgrading of stations for smooth travel.

Some other priorities include safety add-ons such as the Kavach collision avoidance system extension. Similarly, high-speed rail projects like the bullet train are to be given a financial boost.

Here are some stocks to have on your watchlist.

• Rail Vikas Nigam Ltd (RVNL)

  RVNL is the project executing arm of the Indian railways. It takes up project management from conceptualisation to commissioning, including 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. It is part of the Titagarh Group, a diversified industrial conglomerate.

  The company anticipates continued demand for wagons driven by government targets to increase rail traffic to 3 billion (bn) tons by FY30.

  The company's FY25 capex is projected to be between Rs 7 bn and Rs 10 bn, primarily focused on production line setups for Vande Bharat and other propulsion technologies. The company also plans to focus on technological upgrades and capacity expansions.

  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.

• Indian Railway Finance Corporation (IRFC)

  IRFC is a public sector undertaking (PSU) under the Ministry of Railways, Government of India.

  The primary role of IRFC is to finance the acquisition of rolling stock (trains and locomotives), tracks, and other assets required by Indian Railways. It also raises funds through the issuance of bonds in the domestic and international capital markets.

  The company is eyeing investments in various high-impact railway infrastructure projects. These include funding dedicated freight corridors and high-speed rail lines, which are expected to boost both freight and passenger connectivity across regions.

  Additionally, it's supporting the development of multi-modal logistics parks, an area that integrates different modes of transport, reducing costs and increasing efficiency.

  IRFC is also exploring funding opportunities beyond Indian Railways and is actively looking to collaborate with other infrastructure lenders. It also aims to strengthen its internal mechanisms to diversify its business.

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.

But it's important to understand that the budget will not change the fortunes of the stock market as a whole in one direction or another. Investors should be on the lookout for high quality stocks that are trading at reasonable valuations.

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. The 3 sectors and 9 stocks mentioned above should be a good starting point.

Investors should evaluate these companies fundamentals, corporate governance, and valuations of the stocks as key factors when conducting due diligence before making investment decisions.

Happy investing.

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