New budget 2024: Will this ride Sensex to 1 Lakh?
The new budget for 2024 has had a significant impact on the Equity Market, and many people are wondering if it will drive the Sensex to reach 1 lakh. Additionally, it's important to examine the potential effects that this budget may have on different sectors of Indian society. In this blog, we will cover the main focus of the budget for the different sectors, understand the impact, and highlight the key points of the budget 2024.
The main purpose of the budget
The primary objective of the budget is to enhance the financial management of the country, which will lead to faster economic growth. The success of the budget ultimately determines the government's report card. There are two core aims of financial management. The first is to improve revenue, and the second is to allocate resources correctly, i.e. to spend them on assets and areas that can generate good returns over the long term. This has become a cyclical process.
Each government at the center has a different approach to financial management, which depends on its ideology. Let's consider the BJP. They aim to promote equality of opportunity and self-reliance. Therefore, their policies and reforms are mainly geared towards motivating people from every segment, instead of providing direct loans or money. This encourages people to take action on their own, and on that basis, gain support for their schemes. This is slightly different from Congress's ideology.
The BJP has launched several schemes, such as Make in India, which employs people in the country's manufacturing sector, PLI schemes for corporate development, the Vishwakarma Yojana for labor and artisans, and the Lakhpati Didi Yojana for women's empowerment.
If we look at the BJP government's financial management to date, it has been quite successful. Their revenue collection has been growing, and spending on infrastructure has been high in the last two budgets. Moreover, spending has also increased on defense, railways, and agriculture. Therefore, in a bold move, the fiscal deficit may have increased, but it was a good decision to boost economic development and the revenue side.
Key Benefits of Budget
The recent budget had a major highlight of reducing the fiscal deficit. It is estimated to be 5.8% of GDP for the financial year 2024, 5.1% for the next financial year, and 4.8% for FY 2026. This is a positive sign for economic development as it indicates a reduction in sales deficit. However, it is important to note that this is only positive if the deficit is reduced by increasing the revenue side, rather than by reducing expenses. The reduction in deficit in this budget was due to growth in the revenue side, along with an increase in infra capex by 11%, which will be close to Rs 11 lakh crore.
The government has also indicated that sustainable growth can be achieved if private corporates increase their capex. The budget focused on youth and women empowerment, as the growth of an economy improves when its young population becomes skilled and women's participation increases. This generates extra income and increases consumption. The budget also targeted green energy and non-fossil fuel installed electricity capacity. Wind energy, solar installation in one crore houses, EV vehicles for normal transportation, and interstate and bus transportation were promoted. This is important for low-cost and environment-friendly power and energy, which reduces oil & coal imports, strengthens foreign policy, and reduces the cost of power consumption.
Infrastructure development was a major focus of the budget, with an increase in infra capex by 11% to Rs 11 lakh crore. There were many announcements made for road networks, airport expansion, railway corridors, metro, vande bharat & namo Bharat. Housing for the middle class was also allocated in the Pradhan Mantra Awas Yojana. This is a positive move for economic development, as it improves the standards of the economy, employment opportunities, and the speed of doing business.
The budget also focused on promoting tourism, with long-term interest-free loans allocated to the states for state development. Spiritual tourism was also promoted along with normal tourism, as the tourism sector generates maximum employment opportunities. Additionally, agriculture was also targeted with the promotion of growing areas like food processing, dairy, and fisheries to increase production for export.
Taxation is also an important part of the budget. There were no tax cuts announced, and no changes were made in direct and indirect tax rates. The corporate tax rate was kept at 22%, and for new manufacturing companies, the rate was kept at 15%. The previous corporate tax cuts significantly improved the earnings of corporates, giving them excess cash flow, which was positive for fundamental side companies and impacted the stock market.
Overall, this budget was an enhanced version of the development of the last budgets, targeting several revenue streams.
Impact on Equity ; Bond Market
Let's take a look at how the newly announced budget will affect the equity and bond markets. Currently, the share market is experiencing a long-term bull run due to consecutive corporate growth and excellent money flow from retail investors. This positive budget will help balance out any global weaknesses by neutralizing negative sentiments.
For long-term growth, corporations will need to focus on increasing their sales as their profits are already at a multi-decade high. This is achievable due to an increase in PVT capex, domestic consumption, and exports. The lower fiscal deficit is also a good sign for further interest rate cuts, which would make loans cheaper for consumers and increase consumption. Corporations must focus on capex and exports to take full advantage of this.
Valuation is another important factor that can cause temporary market fluctuations. On the bond market side, reducing the budget and fiscal deficit will benefit the bond market by reducing government borrowing. This will increase the international demand for Indian bonds and, along with the rate cut, will result in a rise in bond prices and returns.
Top Sectors Growth after Budget
If we talk about the top sectors that will benefit the most from this budget, there are a few that stand out.
- Firstly, the banking and financial sector, particularly housing finance companies, will benefit from the rate cut. This will lead to an increase in retail loans, housing loans, as well as corporate loans.
- The power and renewable sector will also see growth and positive sentiments. The government has a strong focus on green energy, which will benefit sectors such as power, solar panels, cables, and wires.
- The defense sector will continue to see structural growth as the government aims to be self-reliant in this area.
- The transportation sector will benefit from the ease of transportation theme in the railway, shipping, and aviation sectors.
- Sectors related to the infrastructure theme will continue to grow, such as metals, mining, cement, pipes, and others.
The 2024 budget holds promise for the Sensex, aiming for a significant milestone of 1 Lakh. Focused on enhancing financial management, the budget emphasizes self-reliance and equality of opportunity. The reduction in fiscal deficit, increased infra-capex, and sector-specific growth initiatives signal a comprehensive strategy for economic development.
From an investment standpoint, the budget's impact on equity and bond markets is notable. Banking, power, defense, transportation, and infrastructure sectors are expected to benefit. The budget's positive stance may balance global weaknesses, encouraging corporations to boost sales and capital expenditure.
In conclusion, the 2024 budget sets the stage for economic growth, offering potential investment opportunities. For investors, considering a Systematic Investment Plan (SIP) aligned with financial goals can be a prudent approach to navigating market dynamics.