Equity markets have consistently breached new highs in the year 2024 along with most global markets near their lifetime highs except for Chinese markets. CYTD NIFTY has
delivered ~18% and continues to be resilient trading at reasonable valuations despite a one-year return of 24% and a 3 year CAGR of ~16%. Post election and formation of a coalition, budget was the most awaited event to gauge the impact of coalition on the government
reform path. Despite the compulsions the Finance Minister presented a Budget, outlining the path and pursuit for Viksit Bharat. The budget focuses on building the skilled human capital, boosting manufacturing as next engine of growth, connecting the unexplored hinterlands, enhancing the agriculture productivity by supporting R&D and developing the urban infra & housing. The budget further empowers the youth, farmer, women and poor, by significant investments in employment, skilling, agriculture, infrastructure, and renewable energy. Such schemes have been financed by revising capital gains tax rates marginally upwards while providing relief in personal income tax slabs boosting the consumption.
Key highlights of the budget
Building Human Capital: Introduced schemes to generate employment and skill the young workforce
Internship opportunities to be provided to youth in the top 500 companies with a stipend of Rs 5000 per month and one time assistance of Rs 6,000. One-month wage to new entrants in all formal sectors in 3 instalments up to ₹15,000
Model Skill loan scheme which will help 25,000 students every year for securing loan of upto 10 lakh rupees for higher education in domestic institutes
To boost women’s workforce participation and youth job creation, the budget proposes setting up working women hostels, establishing creches by investing ₹2 lakh crore in youth employment schemes
Boosting Manufacturing: Supporting MSME – Next Engine of Growth
Credit Guarantee Scheme for MSMEs in the Manufacturing Sector
Enhanced scope for mandatory onboarding in TReDS along with new assessment model for MSME credit
Mudra Loans: The limit enhanced to ₹ 20 lakh from the current ₹ 10 lakh under the ‘Tarun’ category
Twelve industrial parks under the National Industrial Corridor Development Programme
Connecting by Infrastructure: Powering the next engine of growth by connecting the backward areas
Plan for endowment rich states in the Eastern parts covering Bihar, Jharkhand, West Bengal, Odisha and Andhra Pradesh for generation of economic opportunities to attain Viksit Bharat
Pradhan Mantri Janjatiya Unnat Gram Abhiyan: Improving the socio-economic condition of tribal communities covering 63,000 villages benefitting 5 crore tribal people
Andhra Pradesh Reorganisation Act: Financial support of ₹15,000 crores will be arranged in FY 24-25 for essential infrastructure such as water, power, railways and roads
₹26,000 crores allocated towards set up of new airports, sports infrastructure and medical colleges in Bihar
Enhancing Agriculture productivity: Spend for Agri and Agri research
Provision of ₹1.52 lakh crore for the agriculture and allied sectors
1 crore farmers across the country will be initiated into natural farming,supported by certification and branding in the next 2 years
10,000 need-based bio-input resource centres to be established
Developing Urban infra, Housing and Real estate
PM Awas Yojana Urban 2.0: Needs of 1 crore urban poor and middle-class families will be addressed with an investment of ₹10L Cr
Promote water supply, sewage treatment and solid waste management projects
Stamp duty rationalisation and encouraging states to lower stamp duty for properties purchased by women
Taxation
LTCG increased to 12.5% from 10%, while STCG increased to 20% from 15%
Tax on income received of buyback security in hands of investors while abolishment of Angel tax
Changes in tax slabs, the hike in standard deduction under the new tax regime could lead to savings of up to ₹17,500 in hands of consumers
Increase in Securities transaction tax (STT) from 0.1% to 0.2% to curb derivatives trading
Impact on markets
While the increase in capital gains tax seems to be marginal, markets would digest the same over a period as the extent of surprise is not too high. Certain changes are likely to be positive on Consumption, agriculture, aquafarming, tourism, rolling railway stock companies, regional cement players, Jewellery companies, mapping companies, recycling companies, affordable housing finance, MSME oriented financials and rural focused businesses. While increase in capital gains tax should have negatively impacted the exchanges, capital market-oriented stocks, it seems the same was already priced in by the markets.
Way forward
Overall, we believe that the markets would now be focusing on the growth trajectory of the economy and corporate commentaries during the earnings season. While the earnings growth remains intact particularly the quarter is influenced by high base and has relatively slowed down due to global moderation, elections and heatwave in the country. The outlook remains constructive with global growth expected to improve, interest rates likely to be cut in the next 12 months and valuations in a reasonable zone. Having said the same, near-term consolidation must be expected given lack of immediate triggers. We continue to be positive on sectors like manufacturing, select financials and consumption themes while balancing the same with IT and selective chemicals.
It has been two years since launch of smallcase by Tikona Capital. We have outperformed the index handsomely on back of select ideas from manufacturing (auto ancillary), financials, consumption and technology.
Logon to https://tikonacapital.smallcase.com/ to know more
Sumit Poddar
Chief Investment Officer & Smallcase Portfolio Manager
Tikona Capital
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