Domestic brokerage firm Emkay Global has praised the Union Budget 2024, describing it as ‘solid’ and emphasizing its policy continuity and commitment to fiscal consolidation. The firm noted that the budget maintained the fiscal consolidation path and continued to focus on capital expenditure.
The brokerage mentioned that a minor hike in capital gains tax is not significant, while the introduction of direct incentives for employment is a substantial measure. Regarding the stock market, Emkay Global expressed caution, stating, “The stock market is vulnerable at these valuations and could correct in the short term. Our favored sectors are FMCG, IT, and consumer durables, while we remain negative on industrials and financials.”
Emkay Global also pointed out that the upcoming earnings season might be lackluster, with moderate topline growth and diminishing margin benefits. The firm added that rate cuts are at least 1-2 quarters away and noted that valuations are stretched at 21.4 times the 1-year forward P/E of Nifty, with no imminent upgrades.
The brokerage noted that the increase in Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes has been minimal and is not a major concern, though the tax on buybacks could negatively impact payouts. It also observed that the increase in Securities Transaction Tax (STT) on derivatives is minor. “Overall, the increase in taxes on capital markets has not been severe and is unlikely to affect market valuations materially,” it added.
Emkay Global sees potential growth for retail, Non-Banking Financial Companies (NBFCs), and Microfinance Institutions (MFIs). The firm explained, “Half the windfall gain from the RBI dividend was diverted to revenue expenditure, with transfers to states being the most prominent expenditure head. We see both as positive and addressing the K-shaped post-Covid recovery. Our positive stance on FMCG and two-wheelers is reinforced by these moves.”
Additionally, Emkay Global highlighted two budget positives: the jewelry sector, which will benefit from a cut in gold import duties, and battery manufacturers, who are likely to gain from lower import duties on critical metals.
“Capital market participants were hit by the CGT and STT hikes, but the impact is negligible. There was a relief rally in some stocks, as there were expectations of more severe measures, especially on derivatives trading,” the firm concluded.