Consumption Bonanza – Delivering Growing Aspirations of Masses! by Axis Securities
The Union Budget 2025-26 was presented today by the finance minister Nirmala Sitharaman. The expectations from the Budget were reasonably high as the Indian economy was facing signs of moderation in economic growth during H1FY25 due to a reduction in government spending, credit tightening in unsecured lending, consumption slowdown (especially in the urban areas), extended monsoon, and inflation. The biggest expectation from the finance minister was to spur economic consumption. We believe the finance minister has laid the foundation for consumption growth in the economy by giving landmark tax rebates for individuals with income up to Rs 12 Lc, thereby providing a significant boost to the masses. The fiscal deficit for FY25 is now revised to 4.8%, 10bps lower than the projected number and is set at 4.4% for FY26. Overall, we believe the Union Budget has played a balancing act to maintain fiscal discipline and support a consumption-led demand in the economy.
The past decade was defined by development-focused schemes, with the construction of roads, bridges, metro systems, and other infrastructure projects serving as benchmarks for the ruling party's success. However, the capacity creation phase has had its own set of challenges that resulted in lower allocation to social schemes. Now, with this budget further strengthening, the focus is given towards rural, masses, and the middle class for spurring consumption, indicating a shift in the economic regime. Consumption-led growth will have a cascading effect on the economy and provide a much-needed boost to the private capex, which has been sluggish for several years. This is expected to positively impact consumption-related stocks, while some moderation is anticipated in capex-related stocks.
Our Key Takeaways from the Union Budget are as follows:
1) Consumption Booster for the Middle Class: The Finance Minister has provided a consumption boost to the middle class by implementing a transformational reform in the tax structure, offering rebates for individuals with incomes up to Rs 12 Lc under the new regime. We believe that individuals in the Rs 12 Lc salary bracket will save approximately Rs 83,000 per year, translating to savings of around Rs 7,000 per month. This is expected to benefit the middle class. Urban consumption, which has been sluggish for multiple quarters, is likely to see a revival in the coming quarters. Sectors such as Retail, FMCG, QSR, Automobiles, and Travel & Tourism are expected to be the key beneficiaries.
2) Continued Thrust on CAPEX: The CAPEX spending in FY25 was sluggish due to the election year. The revised estimate for FY25 CAPEX spending was Rs 10.18 Lc Cr vs the Budget estimates of Rs 11.1 Lc Cr. For FY26, the government has set the CAPEX target of Rs 11.2 Lc Cr, a growth of 10% over the revised estimates. We believe these CAPEX estimates are reasonable and align with the nominal GDP growth rate of 10.1% for FY26. Its unwavering focus remains on Roads, Power, Urban Development, and Railways, sectors that are expected to drive significant long-term economic multipliers.
3) Fiscal Math Reasonable: Nominal GDP growth for FY26 is projected at Rs 356.97 Lc Cr, reflecting a robust increase of 10.1% from the revised FY25 figure of 324.11 Lc Cr. The government has set the fiscal deficit target at 4.4% for FY26, demonstrating fiscal prudence in the coming financial year, even with the landmark tax rebate for individuals with incomes up to Rs 12 Lc.
4) Significant Push for Rural and Skill Development: The budget’s emphasis on Rural Development and Agriculture & Allied Activities, with a total outlay of Rs 2.66 Lc Cr and Rs 1.71 Lc Cr, respectively, is likely to benefit sectors such as Auto, FMCG, Fertilizer, and other rural-oriented industries moving forward. Additionally, the budget will indirectly support the rural sector through infrastructure improvements, tourism, fisheries, and skill development initiatives.
Our Positive Budget Play (Coverage): Ultratech Cement; Maruti; Hero Motocorp; Trent, Westlife Food; Avenue Supermart; Bajaj Finance; Prestige Estate; Indian Hotels
Our Positive Budget Play (Non-Coverage): Macrotech Developers (Real Estate play); Allied Blenders (Consumption Play); Metro Brands (Footwear Play); Exide industries (Support towards Green Mobility play); Thomas Cook (Travel & Tourism play)
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