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Union Budget 2023-2024 A Detailed bundle of expectations!

Union Budget 2023-24

Union Budget 2023-2024

The IndianUnion Budget 2023-2024 stock markets are currently witnessing uninspiring performance, with bearish sentiments prevailing due to three key factors:


  1. Foreign institutional investors (FIIs) are on a selling spree.

  2. Banking stocks are experiencing a decline.

  3. Corporate India's Q3 earnings are disappointing.

Nifty's performance in 2024 has been shaky, attributed to economic uncertainty, geopolitical chaos, inflation, and a hawkish Federal Reserve stance. Additionally, high valuations and muted corporate earnings contribute to the market decline.

In January alone, FIIs have sold Rs. 35,778 crores worth of shares, compared to Rs. 3,392 crores in FY 2023. Notably, Nifty lags behind Wall Street indices significantly, with the Dow & Nasdaq up 1% and 3% respectively, while Nifty is down 1.75%.

Investors at Dalal Street are hoping for a shift from exhaustion to optimism. Against this backdrop, Finance Minister Nirmala Sitharaman shoulders the responsibility of restoring investor confidence, showcasing Prime Minister Narendra Modi's economic vision.

Expectations for the Interim Union Budget are high, as it's the last budget before the 2024 general elections. All eyes are on FM Sitharaman to deliver a balanced budget focusing on job creation, infrastructure, rural economy, and deficit control. The budget, to be presented on February 1st, 2024, must meet the nation's expectations and set the path for India's economic growth towards a $5 trillion economy by 2030.

In short, the focus is on FM Sitharaman's ability to support economic growth while managing deficits. Let's usher in reforms that propel India to the forefront of the global economy.


Before we start, first things first. The state of Indian economy....

Economic Outlook


India's Economic Outlook

India's GDP growth in the second quarter of FY24 surpassed expectations, reaching 7.6%. Projections from the IMF, World Bank, and RBI's Professional Forecasters' Survey estimated a growth range of 6.3% to 6.4% for the fiscal year 2024-25.

However, several risks loom over these estimates:

  • US Federal Reserve Interest Rate Hike: Any interest rate hike by the US Federal Reserve could potentially trigger a recession in the US economy, impacting global economic stability.

  • Crude Price Volatility: Global crude oil prices are subject to volatility, especially amidst brewing geopolitical tensions in the Middle East, which could affect India's economy.

  • Merchandise Exports: India faces challenges with sluggish growth or constant contraction in merchandise exports, posing a risk to economic growth.

  • Foreign Direct Investment (FDI): There's a possibility of significantly low net FDI inflows, which could impact India's economic stability.

  • Monsoon Deficiency: Deficiency in the south-west monsoon (SWM) could adversely affect agricultural output and overall economic growth.

Despite these risks, there's a positive outlook for India's GDP growth, expected to stabilize at high rates of around 7% for the next two or more years. In contrast, the IMF projects a decline in global growth to 2.9% in 2024.

As of December 2023, India's current GDP stands at $3.73 trillion, reflecting the country's growing economic significance on the global stage. The robust GDP growth rate of 7.6% in Q2 2023 underscores India's resilience and potential for sustained economic expansion.



Private Final Consumption Expenditure.


Private Final Consumption Expenditure.


  • PFCE Growth: The Personal Final Consumption Expenditure (PFCE), a key indicator of consumption, is projected to grow at a rate of 4.4% in the fiscal year 2023-24. This growth rate marks the slowest pace in two decades, excluding the pandemic-hit year of FY21, with the previous low recorded at 2.9% in 2002-03. In contrast, PFCE witnessed robust growth of 7.5% in 2022-23.

  • Driving Factors: PFCE demand is anticipated to be the primary driver of India's economic growth. Additionally, two other drivers have emerged. Firstly, there's a gradual strengthening of investment demand, driven by increasing stock market capitalization, which has generated a wealth effect. Secondly, the urban unemployment rate is steadily decreasing, leading to higher disposable incomes for spending purposes.

  • Digital Expression of Consumption: The trend of strong consumption is also evident in digital transactions, particularly through the Unified Payments Interface (UPI). UPI transactions have surged to an all-time high, reaching 8,572 crore by December 2023. This substantial growth in digital transactions reflects a broader shift towards digital payments. From 92 crore transactions in FY 2017-18, UPI transactions escalated to 8,375 crore in FY 2022-23, demonstrating a remarkable Compound Annual Growth Rate (CAGR) of 147% in terms of volume.

  • Cushioning Economic Growth: Strong domestic consumption demand is expected to act as a cushion for India's economic growth amid global sluggishness. This resilience in domestic consumption is crucial for sustaining economic momentum and offsetting any adverse external factors


Gross value added (GVA)



Amidst robust domestic demand, the Gross Value Added (GVA) surged by 7.4% Year-on-Year (YoY) in the second quarter of FY24, reflecting a commendable H1 growth of 7.6% in FY24.


Driving Growth: The industrial and services sectors emerged as the primary growth drivers during the first half of FY24. Notably, the industry segment experienced a significant upswing, expanding by 9.3% in H1 FY24. The manufacturing sector, in particular, showcased remarkable resilience, witnessing expansion for 29 consecutive months as of November 2023. This sustained growth was fueled by a surge in new orders and favorable demand conditions.


Industrial Performance: The Index of Industrial Production (IIP) corroborates the robust performance of the manufacturing sector, recording a notable growth rate of 6.1% in H1 FY24. Within the industrial landscape, the capital goods sector and the construction and infrastructure goods sector stood out with impressive growth rates of 7% and 12.4%, respectively.


Services Sector Resilience: Concurrently, the services sector exhibited commendable performance, posting an 8% YoY growth in H1 FY24. This resilience underscores the diversified strength of India's economy, with both industrial and services sectors contributing significantly to overall growth.


Manufacturing GVA (YoY %)



GVA growth pegged at higher-than-expected 7.4% in Q2 FY2024: This was mainly attributable to the better-than- anticipated performance of the manufacturing (YoY: +13.9%) and construction (+13.3%) sectors.




Consumer Price Inflation (CPI)


The good news is that inflationary pressures have moderated in the first half of FY24, with average retail inflation easing to 5.5% from 7.2% in H1 of FY23. The CPI inflation rate was recorded at 5.6% in November 2023, with stable core inflation at 4.1% but elevated food inflation at 8.7%. The headline inflation outlook is on a declining trend with RBI has projected inflation to average at 5.4% in FY24.
















Gross value added (GVA)






The current repo rate stands at 6.50%. The RBI Monetary Policy Committee kept the repo rate unchanged at 6.5% since February 2023.








The government's fiscal deficit, the difference between expenditure and revenue at the end of November stood at ₹9.06 lakh crore or 50.7% of the fullyear budget estimate. For 2023-24, the fiscal deficit of the government i s estimated to be at ₹17.86 lakh crore or 5.9% of the gross domestic product (GDP).







The RBI’s Consumer Confidence Survey shows that consumer sentiment in India remained unchanged at 92.20 points in November 2023. Consumer Confidence in India averaged 90.71 points from 2010 until 2023, reaching an all-time-high of 116.70 points in December of 2010 and a record low of 48.50 points in May of 2021.



Healthy/Robust Tax Collection in FY23










Inflation rate of 4–5% desirable.

• RBI is likely to desist from raising the policy rate in the near future.

• For FY24, gross tax collection is estimated to grow 9- 10%.

• Expenditure set to increase around 12%

• The Centre will be able to achieve its fiscal deficit target of 6.4 per cent of gross domestic product (GDP) for 2022-23 .The fiscal deficit target for FY24 could be 5.9%.




Interim Budget 2024


The gross Goods and Services Tax, GST revenue collected in December, 2022 is Rs. 1,49,507 crore. The GST revenues is 15 percent higher than the GST revenues in the same month last year.





Anticipation for Interim Budget 2024:

Investors are eyeing the recent assembly results as a positive sign for the continuity of government policies, positioning the BJP favorably ahead of the Lok Sabha elections scheduled for May 2024. The upcoming Interim Budget on February 1st, 2024, under the stewardship of Hon’ble Finance Minister Nirmala Sitharaman, is expected to reflect the confidence of the central government and provide insight into its priorities and spending plans.

Key Expectations from Finance Minister Nirmala Sitharaman's Budget 2023 Speech:

  1. Fiscal Balance: Striking a balance between fiscal consolidation and incremental capital expenditure is crucial for the FY2025 Budget. The government aims to signal a movement towards the stated fiscal deficit target of 4.5% of GDP in FY26, with an eye on gradually reducing it to 3% of GDP by FY28.

  2. Healthcare Spending: Given the aftermath of COVID-19, there's a growing emphasis on increasing healthcare spending. The budget is expected to allocate additional funds for vaccine-related costs and prioritize spending in healthcare, social sectors, and education.

  3. Attracting Foreign Investment: To position India as an attractive option for foreign firms exiting China, the government plans to enhance supply chain capacity and simplify legislation, supported by liberal tax compliance measures. Details on the extended sectors under the Production Linked Incentive (PLI) scheme are eagerly awaited.

  4. Ease of Doing Business: Simplifying tax compliance procedures, particularly for non-resident taxpayers and addressing concerns related to Equalisation levy and TDS/TCS provisions on e-commerce, are essential for improving the ease of doing business in India.

  5. Agriculture and Farmer Welfare: Doubling farmers' income remains a key focus, with expectations for increased support in fertilizers, irrigation, food processing, logistics, and research & development. Addressing ongoing farmer protests and ensuring commitment towards minimum support prices will be closely watched.

  6. Real Estate Sector Support: With the rise of 'Work-from-home' culture, incentives to support the real estate sector, such as higher tax exemptions on housing loans, are anticipated to stimulate demand for bigger homes with dedicated workspace.

  7. Disinvestment Target: Amidst global uncertainties and unfavorable market conditions, the government is likely to revise its divestment target for FY25. The removal of Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax could provide a significant boost to investor sentiment and market activity.

  8. Tax Reforms: Investors and traders are advocating for the removal of STT and LTCG, along with tax exemptions on Short-Term Capital Gains (STCG) to stimulate investment and trading activity in the market.

As anticipation builds for the Interim Budget, stakeholders across various sectors are eagerly awaiting the government's fiscal roadmap and policy initiatives to drive economic growth and development in the country.



Automobile Sector:





Navigating Challenges in the Indian Automobile Industry:

The Indian automobile sector, a significant contributor to the nation's GDP at 6.4% and 35% of manufacturing GDP, is facing multifaceted challenges amidst the ongoing economic turbulence. A cornerstone of employment, the industry's health often mirrors the broader economic landscape.

Current Challenges:

  1. Complex Tax Structure: The industry grapples with a labyrinthine tax regime, adding layers of complexity to operations.

  2. Pandemic Pressures: The COVID-19 pandemic, coupled with soaring commodity prices, has placed immense strain on the sector. Increased input costs, shipping, and logistics expenses have further exacerbated the situation.

  3. Semiconductor Shortage: A global semiconductor shortage has compelled companies to scale back production despite robust demand, leading to production bottlenecks.

Budget Expectations:

  1. Electric Vehicle (EV) Industry Support: Anticipation is high for Budget 2024 to address the needs of the burgeoning EV sector. Stakeholders hope for rate rationalization to streamline operations and reduce litigations.

  2. GST Relaxations: The Automotive Component Manufacturers Association (ACMA) advocates for a uniform GST rate of 18% on all auto parts to rectify the inverted duty structure, thus enhancing working capital liquidity.

  3. Government Initiatives: Industry players seek comprehensive government initiatives such as a scrappage policy, performance-linked incentive (PLI) schemes for EVs and advanced technology components, and expansions of existing programs like Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) II and PLI schemes. Additionally, fostering a conducive environment for startups and MSMEs, along with support for the recently announced PLI scheme for semiconductors, is crucial for industry growth.

Promising Investments:

  • Maruti

  • M&M

  • Ashok Leyland

  • Bajaj Auto

Amidst challenges, strategic government interventions and proactive industry measures can pave the way for sustainable growth and innovation in the Indian automobile sector.


Infrastructure Sector:


Elevating India's Infrastructure Landscape:

The infrastructure sector remains a pivotal driver of India's journey towards achieving its ambitious goal of becoming a US$ 5 trillion economy by 2025. As the backbone of economic progress, robust infrastructure development is imperative.

Budget Highlights:

  1. Capital Investment Surge: In a significant move, the capital investment outlay for infrastructure in Budget 2023-24 is bolstered by a remarkable 33%, soaring to Rs. 10 lakh crore (US$ 122 billion), constituting 3.3% of GDP. This substantial increase, nearly tripling the outlay since 2019-20, underscores the government's unwavering commitment to infrastructure augmentation.

  2. Logistics Sector Impetus: Recognizing the pivotal role of the logistics sector, the budget prioritizes its enhancement. With the sector currently contributing 5% to India's GDP and employing approximately 2.2 crore individuals, the market is poised for exponential growth, projected to reach US$ 320 billion by 2025 and a staggering US$ 650.52 billion by 2028, boasting a robust CAGR of 8.3%.

  3. Urban Infrastructure Imperative: Addressing the burgeoning urbanization, India necessitates a staggering investment of $840 billion over the next 15 years to fortify its urban infrastructure, as per the World Bank report. This colossal investment is imperative to cater to the evolving needs of the burgeoning urban populace.

Budget Expectations:

  1. Augmented Public Investments: As the torchbearer of economic growth, the government must escalate public investments and infrastructure spending in FY25. Alongside enhanced fund allocations, meticulous monitoring mechanisms are imperative to ensure the optimal utilization of resources.

  2. Private Investment Encouragement: Facilitating a conducive environment for private investments in infrastructure, encompassing railways, roads, urban infrastructure, and power, is paramount. Heightened government emphasis on safety standards and expeditious infrastructure upgrades is anticipated to bolster investor confidence.

  3. Technological Advancement: The infusion of technology and digital adoption in the construction industry is imperative. Embracing automation, digitization, and modern machinery is crucial to mitigate dependencies on unskilled labor and fortify the sector's resilience. Drawing insights from global paradigms, particularly from developed markets like China, underscores the imperative of prioritizing technology-driven infrastructure projects.

  4. Policy Reforms: Streamlining land acquisition processes for infrastructure projects is imperative to expedite project timelines and minimize bottlenecks. Prioritizing rural and urban connectivity, railways, ports, aviation, and highways is paramount, given their profound impact on economic growth and employment generation.

Strategic Investment Opportunities:

  • Larsen & Toubro (LARSEN)

  • ITD Cementation

Amidst the evolving economic landscape, strategic investments and concerted government efforts are imperative to fortify India's infrastructure framework and propel the nation towards sustained growth and prosperity.


Financial Sector:


Fortifying India's Financial Landscape:

India's banking and financial sector constitutes a vital pillar of the nation's economic edifice, facilitating credit, infrastructure development, and investment opportunities across diverse sectors.

Sector Dynamics:

  • Rising Demand: Increasing income levels are propelling the demand for financial services across various income strata, underpinning the sector's growth trajectory.

  • Insurance Sector Potential: With a projected investment corpus of US$ 1 trillion by 2025, the Indian insurance sector presents lucrative opportunities for investors, driven by evolving consumer preferences and economic expansion.

  • Fintech Revolution: India's burgeoning fintech ecosystem, comprising over 2,100 fintech firms, positions the country as a frontrunner in the digital arena. Rapid mobile and internet penetration are catalyzing the sector's expansion, heralding a new era of financial inclusion and innovation.

  • Banking Landscape: India boasts a robust banking landscape, with 33 private and public banks operating alongside nearly 100,000 urban and rural cooperative banks. Private sector banks recorded assets exceeding 1,016.93 billion U.S. dollars, while public sector banks amassed assets worth over $1.7 trillion in the financial year 2023, underscoring their pivotal role in the economy.

Post-Pandemic Rebound:

Despite weathering pandemic-induced headwinds, the banking sector is witnessing a resilient rebound. Bank credit is poised to grow at a robust rate of 15% per annum in fiscals 2023 and 2024, buoyed by a broad-based economic recovery and strengthened balance sheets, empowering lenders to expand credit access.

Budget Anticipations:

  1. PSU Bank Privatization: Market participants anticipate a higher recapitalization allocation for PSU banks, bolstered by increased market borrowings. A roadmap for reducing the government's stake in public-sector banks is eagerly awaited, alongside measures to fast-track the PSU bank privatization program, enhancing the efficiency of smaller PSU banks.

  2. Digitalization Focus: Emphasizing digitalization incentives for banks remains a key expectation, aligning with the industry's trajectory towards technological advancement and enhanced customer-centric services.

  3. Liquidity Support for NBFCs: The street advocates for empowering agencies like SIDBI or NABARD to provide active liquidity support to NBFCs, fostering a conducive environment for their sustained growth and stability.

Strategic Investment Picks:

  • State Bank of India (SBI)

  • Canara Bank

  • Punjab National Bank (PNB)

  • Indian Bank

  • Bank of Baroda

  • Union Bank of India

  • ICICI Bank

As India charts its course towards economic resurgence, fortifying the banking and financial sector remains paramount, catalyzing sustainable growth and fostering a robust economic ecosystem.


Real Estate and Housing Finance Companies:


Revitalizing India's Real Estate Landscape:

The Indian real estate sector stands as a cornerstone of the nation's economy, serving as a significant employment generator and a key contributor to GDP growth.

Sector Significance:

  • Employment Generator: Second only to the agriculture sector, India's real estate industry is a vital source of employment, offering livelihoods to millions across the country.

  • Growth Trajectory: Poised for exponential growth, the Indian real estate sector is forecasted to reach $1.04 trillion by 2029, contributing 13% to the nation's GDP by 2025. Such projections underscore the sector's pivotal role in driving economic prosperity and development.

  • Investment Inflows: Private equity investments in India's real estate sector surged to US$ 4.2 billion in 2023, reflecting robust investor confidence in the sector's potential. Additionally, FDI inflows totaling US$ 56.03 billion from April 2000 to March 2023 underscore the sector's attractiveness to foreign investors.

  • Government Commitment: The Union Budget 2023-24 reaffirmed the government's commitment to the real estate sector, with a substantial allocation of Rs. 79,000 crore (US$ 9.64 billion) for the PM Awas Yojana, marking a significant increase compared to previous years.

Budget Expectations:

  1. Affordable Housing Boost: To further stimulate the affordable housing segment, stakeholders anticipate an increase in the tax exemption limit for home loans, facilitating greater access to financing for prospective homebuyers and developers alike.

  2. Sustaining Growth Momentum: Amid challenging macroeconomic conditions characterized by high inflation and escalating interest rates, maintaining growth momentum is imperative. The government must navigate these complexities adeptly to instill confidence among investors, both domestic and global, amidst looming recessionary pressures.

Strategic Investment Picks:

  • Oberoi Realty

  • DLF

  • Godrej Properties

As the Indian real estate sector charts its course towards unprecedented growth and resilience, strategic interventions and policy support are essential to unlock its full potential, driving inclusive economic development and prosperity for all stakeholders.



Budget Expectations:


  1. Empowering Affordable Housing: The government's initiative to bolster the affordable housing segment could be amplified by raising the tax exemption limit for home loans. By enhancing this limit, the accessibility of financing for homebuyers would improve, fostering greater participation in homeownership and spurring demand in the real estate market.

  2. Sustaining Growth Amidst Economic Challenges: Amidst challenging macroeconomic conditions characterized by high inflation and escalating interest rates, sustaining growth momentum becomes paramount. Global investors are exercising caution, adopting a wait-and-watch approach amidst looming recessionary pressures. In this context, strategic investments in robust players like Oberoi Realty, DLF, and Godrej Properties present compelling opportunities for navigating economic uncertainties and harnessing long-term growth potential.


Our best plays for Interim Union Budget 2024:


Conclusion:

Conclusion:

In the lead-up to the Interim Union Budget 2024, India stands at a critical juncture, poised to address the challenges and opportunities that lie ahead. With economic indicators signaling a mix of promise and concern, all eyes are on Finance Minister Nirmala Sitharaman as she prepares to unveil the government's fiscal roadmap.


Amidst a backdrop of global uncertainty and domestic imperatives, the budget assumes significance not only as a financial plan but as a blueprint for India's socio-economic transformation. From infrastructure development to financial sector reforms, from real estate incentives to automotive industry support, the expectations are diverse and demanding.

At the heart of these expectations lies the quest for balance – balancing fiscal prudence with growth imperatives, balancing sectoral needs with overarching national goals, and balancing short-term exigencies with long-term vision. The budget presents an opportunity for the government to demonstrate its commitment to inclusive development, sustainable growth, and responsible governance.


As stakeholders eagerly await the budgetary announcements, optimism mingles with caution. The hope is for a budget that not only addresses immediate concerns but also lays the groundwork for a resilient and prosperous future. With bold reforms, strategic investments, and a focus on innovation, India can navigate the complexities of the global economy and emerge stronger than ever before.


Ultimately, the Interim Union Budget 2024 represents more than just numbers on a balance sheet – it embodies the aspirations, aspirations, and aspirations of a nation on the cusp of greatness. It is a testament to India's resilience, determination, and unwavering spirit in the face of adversity. And as the budget speech echoes through the hallowed halls of Parliament, it serves as a clarion call for unity, progress, and prosperity for all.


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