The market will digest the budget and move back to earnings and the upcoming RBI MPC meeting on Feb 7, said a report on Monday.
MPC may go for 25bps rate cut to further ease liquidity, as predicted earlier. RBI’s MPC will decide on key rates, CRR and Reverse Repo. This will be the first policy under new RBI Governor Sanjay Malhotra and is going to be big for the market sentiment.
Union Budget 2025-26: A Shift from Capex to Consumption and Savings; Yet Fiscal Deficit Consolidation Remains a Priority, According to MOFSL report.
Unlike previous years, the Budget chose to stimulate consumption and savings over capex. But still stayed focused on fiscal consolidation.
Budget has shifted its fiscal stance to consumption from long standing focus on capex. This is because of consumption weakness and soft sentiment in the economy.
FM has shown flexibility in adjusting the fiscal stance to boost consumption without populist measures, says the report. Budget has fiscal discipline, FY26 fiscal deficit at 4.4% which is 10 bps lower than the glide path requirement.
This should benefit the bond market, improve India’s rating with sovereign agencies and make room for monetary accommodation, potentially allowing RBI to cut rates. Subsidies have been held flat for the third year running, and their share is brought down to 8% of total expenditure in FY26E from 14% in FY23.
Government has focused on ease of doing business by relying on self-regulation/self-assessment, lightening income tax provisions and thereby reducing compliance across various laws.
Market will digest the budget and move back to earnings and the upcoming RBI MPC meeting on Feb 7.
Earnings growth expectations have been tempered, with NIFTY PAT expected to be up 5%/16% FY25/FY26. Large cap is a better bet than mid and small cap. As on date, NIFTY trades at 19.9 times on 1 year forward basis while NIFTY Mid cap and Small cap trade at premium.
