What sectors should investors focus on to increase their budget?

When investing ahead of the July 2024 budget, carefully assess the sectors that are expected to benefit from government policies and reforms.

Industry experts predict a significant change in the situation in the SME sector and related sectors due to changes in government policy. While promising sectors such as infrastructure, banking and financial services, automotive and electric vehicles are worth considering, investors should choose stocks based on fundamentals and stocks with high growth potential that can benefit from credible fiscal injections.

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Budget and sectors

Similar to the reduction in the estimated fiscal deficit for FY23 to 5.8% of the country’s GDP (as against the target of 5.9%), the Center has reiterated its target of reducing the fiscal deficit to 4.5% of the country’s GDP by FY26. The upcoming budget is expected to move towards this target, proposing a reduction of 70 basis points to 5.1 percent of the country’s revenue for FY25. Thus, the government cannot deviate from its fiscal consolidation targets.

Ravi Singh, vice-president, retail research, Religare Broking Ltd, says railways, infrastructure, PSUs and defense are the sectors to rely on.

Singh says, “In the recent past, we have witnessed many changes in government policy towards modernization of Indian Railways. Capital allocation to the rail sector is expected to continue in the future. The government’s focus on capital reconstruction and achieving disinvestment targets will help PSUs grow. The government is expected to continue to prioritize defense self-reliance in the future.

According to Tata Mutual Fund’s stock outlook, the sectors that have a positive outlook based on fundamentals include banking, capital goods and manufacturing. Neutral sectors include pharmaceuticals and healthcare, information and information technology. Urban consumption, after growing significantly in 2022, is slowing under the influence of inflation and interest rates and therefore has a negative outlook. whereas consumption in rural areas is growing, albeit gradually, and is assessed as neutral.

It further said that mobile phones or electronics, pharmaceuticals, batteries and electric vehicle semiconductors are the topics that are most likely to be invested in the coming financial year, with the highest PLI incentive already being granted. While mobile phones and electronics have been identified as export leaders, the pharmaceutical industry is likely to benefit from government incentives for import substitution. Electric vehicle batteries, semiconductors and drones are ready for the rising sun sectors.

In summary, investors should look for companies in the above sectors that have growth potential but are affordable. Instead of focusing on market trends, choose individual companies that are experiencing upward revisions in earnings forecasts.