Expert View: Union Budget 2025 Expected to Stabilize Markets with Pro-Growth Policies

Expert View: India Inc and stock market participants are eagerly awaiting the unveiling of the Union Budget 2025. Broad expectations are set for strategic policy announcements aimed at invigorating the the slowing economy. Investors and market participants hope for concrete steps to enhance urban consumption, reduce income tax for the middle class, and maintain fiscal discipline.

Narinder Wadhwa, Managing Director & CEO of SKI Capital, expressed his views in an interview with Nikita Prasad of Mint. According to Wadhwa, the coming budget is expected to emphasize driving demand and increasing investment in key sectors such as infrastructure, healthcare, and rural development. These measures, he believes, will stabilize stock market sentiment, especially with the clarity provided on long-term taxation.

Edited excerpts from the interview:

Q: What are your major expectations from the upcoming Union Budget 2025? How will the policy announcements impact the Indian stock market, which has seesawed due to heightened volatility over the past few months?

A: Wadhwa anticipates the Union Budget 2025 will center on generating demand, fostering economic growth, and bolstering investor confidence. He expects increased spending in areas like infrastructure, healthcare, and rural development to spur job creation and consumption. Wadhwa also predicts potential tax reforms aimed at boosting disposable incomes and stimulating demand.

Support for private investment through incentives in PLI schemes and public-private partnerships is also in the picture. According to Wadhwa, pro-growth policies combined with clear long-term taxation guidelines should bolster stock market sentiment. However, it is crucial that these efforts control the fiscal deficit effectively.

Q: With respect to the Union Budget 2025, which sectors will likely receive the highest budgetary allocation? For investors tracking sectoral insights, which sectors present the best opportunities and which are most affected?

While Wadhwa didn’t specify particular sectors for the highest allocations, sectors such as infrastructure, healthcare, and rural development are expected to receive significant investment. These areas can offer excellent investment opportunities due to dedicated budget allocation and projected growth. Meanwhile, sectors heavily reliant on consumer sentiment, like retail and automobile, will be influenced primarily by demand revival measures.

Q: India’s retail inflation has eased over the past two months, while the US Federal Reserve has cut rates for three consecutive meetings. When do you think the RBI will reduce policy rates, and how will markets react to rate cuts?

A: Wadhwa predicts the Reserve Bank of India (RBI) might consider reducing policy rates at its upcoming Monetary Policy Committee (MPC) meeting in February 2025, provided inflation remains within the targeted range. He notes that global economic trends, specifically the Federal Reserve’s dovish stance, along with weakened domestic demand, are factors influencing the potential rate cut.

A rate reduction could positively impact sectors sensitive to interest rates, such as real estate, automobiles, and capital goods. Additionally, lower borrowing costs could encourage private investments, boost corporate profits, and stabilize the broader market.

Q: How will US President Joe Biden’s policies regarding tariffs and other announcements impact India’s trade relations with the US? How will it impact India’s economy and financial markets?

A: Wadhwa acknowledges that President Biden’s tariff policies could have mixed implications for India. Rigorous tariffs could disrupt supply chains in sectors like electronics and textiles but could also offer opportunities for Indian manufacturers as firms look for alternatives to Chinese suppliers.

While tariffs might increase costs for exporters, IT services may benefit from companies outsourcing to control expenses. Wadhwa anticipates that financial markets could experience volatility due to trade uncertainties but notes that a stable US economy may indirectly support global markets, including India’s.

Q: How do you see India’s macroeconomy in 2025 amid global challenges? How do you project the inflation and growth trajectory for 2025?

A: According to Wadhwa, India’s macroeconomic outlook for 2025 hinges on domestic recovery measures and global challenges. He believes that India’s GDP growth will gradually improve, benefiting from government spending and private investments. He also mentions that inflation, though currently easing, poses risks due to global energy prices and supply chain disruptions.

Wadhwa suggests that if crude prices remain stable, inflation should stay within the RBI’s target range. Despite ongoing challenges, he anticipates that India will maintain a balanced approach between growth and inflation.

Q: Are you concerned about stretched valuations in Indian markets? What trading strategy should investors adopt amid market volatility?

A: Wadhwa expresses concern over stretched valuations in sectors like FMCG and technology, particularly when earnings growth may not justify current prices. However, he highlights government-driven sectors such as infrastructure and capital goods as attractive investment opportunities.

He recommends that investors focus on company fundamentals, diversify portfolios, and adopt a phased investment strategy. Wadhwa also emphasizes the importance of monitoring external risks, including US trade policies and global interest rates. Adopting a disciplined approach can help investors capitalize on long-term opportunities amidst market volatility.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.