pre budget 2025

Pre-Budget 2025: Sector Outlook, Expectations, and Stocks to Focus

The Union Budget for 2025-26, set to be presented by Finance Minister Nirmala Sitharaman on February 1, is expected to focus on several key areas while addressing emerging challenges, building on trends from previous years. In this blog, we’ll focus on the key expectations on a sector-wise basis and stocks you can bet on in this Budget season.

Union Budget 2025: Private Investment and Fiscal Deficit on Target

In this Union Budget 2025, we might see a slower pace of disinvestment, with more emphasis on investing in state-owned enterprises. This shift stems from the view that large state-owned companies can be restructured to become more profitable, thereby generating dividend income for the government.

For example, the government plans to invest between $230 million and $350 million into Pawan Hans and has recently unveiled a $1.3 billion plan to revive the debt-laden Rashtriya Ispat Nigam Ltd (RINL). In FY2025, ₹80 billion was allocated by the government for MTNL’s bond repayments, following a series of defaults.

Tax reforms are expected to be a central focus in this Union Budget, with efforts to simplify the tax structure, enhance compliance, and ease the tax burden on the middle class. Anticipated changes include increases in the standard deduction and reductions in tax liabilities across different income brackets.

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The Union budget is also likely to emphasize policy continuity, maintaining fiscal prudence while upholding subsidies, especially for food and fuel. In addition, a greater allocation for capital expenditure is expected, reinforcing the government’s ongoing push for infrastructure development.

In the previous budget, Finance Minister Nirmala Sitharaman revised the fiscal deficit estimate to 4.9%, down from the 5.1% projected in the Interim Budget. The government aims to further reduce the fiscal gap to 4.5% by FY2026.

Pre-Budget 2025: Sectors and Stocks to Watch Out This Season

Here are the different sector expectations that can be fulfilled in the upcoming Union Budget and stocks to benefit from the announcements.

1. Automobile

  1. Expanding the scope of the scheme to boost the manufacturing of electric passenger cars.
  2. Offering incentives for local production of key EV components, such as batteries and powertrains, to enhance domestic capabilities.
  3. Streamlining GST rates on electric vehicles and related components, with a focus on battery-swapping solutions.
  4. Extending the PLI scheme to include additional sectors, such as component manufacturing.

Automobile: Stocks to Focus

2. Bank/ Financial Services

  1. Providing tax rebates on savings instruments like fixed deposits and savings accounts.
  2. Emphasizing digital infrastructure to promote financial inclusion.
  3. Encouraging credit flow to priority sectors such as MSMEs, agriculture, and infrastructure, possibly through interest subvention schemes and expanded credit guarantees.
  4. Exempting NBFCs from Tax Deducted at Source (TDS), aligning them with banks, insurance companies, and other financial institutions.

Banks/ Financial Services: Stocks to Focus

3. Capital Goods

  1. Increasing the budget allocation for capital expenditure, with a focus on roads, railways, defense, and Energy Management Systems (EMS).
  2. To foster growth, the government is likely to incentivize corporate spending on capital expenditure.

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Capital Goods: Stocks to Focus

4. Information Technology (IT)

  1. A potential increase of up to 20% in the allocation for the India AI Mission.
  2. Additional tax breaks, funding schemes, and R&D grants to support innovation.
  3. Prioritizing investments in cybersecurity infrastructure and initiatives.
  4. Focusing on upskilling and reskilling the workforce to meet evolving demands.

Information Technology (IT): Stocks to Focus

5. Energy & Power

  1. Increasing funding for renewable energy projects to support India’s goal of reaching 500 GW of energy capacity from non-fossil sources by 2030.
  2. Enhancing the Production-Linked Incentive (PLI) schemes for solar components to reduce reliance on imports.
  3. Implementing a uniform 5% GST rate across all battery types, aligning with the lower GST on electric vehicles. Currently, lithium-ion batteries are taxed at 18%, while other battery types like lead-acid, sodium, and flow batteries face a 28% GST, while electric vehicles enjoy a 5% rate.
  4. Reducing the GST on solar panels and wind turbines from 12% to 5% to make clean energy solutions more affordable and drive their widespread adoption.
  5. Offering fiscal incentives and supporting infrastructure development to reduce green hydrogen production costs and promote its large-scale deployment.

Energy & Power: Stocks to Focus

6. FMCG & QSR

  1. Introducing higher income tax exemptions to increase disposable income.
  2. Boosting allocations under MNREGA and other targeted government schemes to enhance both farm and non-farm incomes.
  3. Investing in digital infrastructure, skill development, and MSME support to drive economic activity in rural areas.
  4. Expanding the Production-Linked Incentive (PLI) scheme to include the FMCG sector.
  5. Granting industry status to the food services sector and implementing a fair e-commerce policy to ensure a level playing field.
  6. Improving access to debt financing for small and medium enterprises (SMEs).
  7. Introducing a single-window policy to expedite restaurant openings, with uniform licensing across states and streamlined renewal processes.

FMCG & QSR: Stocks to Focus

7. Healthcare/ Pharmaceuticals

  1. Reducing customs duties on essential medical equipment and consumables.
  2. Increasing the tax deduction limit for health insurance premiums.
  3. Expanding coverage under the Ayushman Bharat scheme, with a higher allocation to include more families and extend coverage to non-communicable diseases and mental health services.
  4. Prioritizing targeted investments in rural healthcare infrastructure, as well as specialist care facilities for women and the elderly.
  5. Rolling out the Research Linked Incentive (RLI) scheme, as announced in the previous financial year, to encourage higher R&D investment.
  6. Expanding the scope of the Production-Linked Incentive (PLI) scheme and increasing its allocation to include more pharmaceutical products and critical raw materials essential for self-reliance.

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Healthcare/ Pharmaceuticals: Stocks to Focus

8. Metal & Mining

  1. Reducing import duties to zero on critical raw materials not available in India and introducing fixed tariff values for stainless steel products.
  2. Addressing the inverted duty structure for aluminium by cutting import duties on raw materials and raising duties on imported finished products.
  3. Removing the coal cess to support power-intensive industries, such as aluminium, and maintain the competitiveness of the domestic sector.

Metal & Mining: Stocks to Focus

9. Oil & Gas

  1. Approving the Oilfield (Regulation and Development) Amendment Bill to encourage investments in oil and gas exploration.
  2. Increasing investments in renewable energy.
  3. Expanding Production-Linked Incentive (PLI) schemes to support supply chain decarbonization and the development of green hydrogen technologies and economies.

Oil & Gas: Stocks to Focus

10. Realty

  1. Providing enhanced tax benefits for home loan repayments to encourage property ownership and stimulate demand in the housing sector.
  2. Capping the set-off of house property losses against other income sources to ₹2 lakh annually.
  3. Introducing taxes on notional rent for unsold properties held as stock in trade by developers.
  4. Reintroducing or expanding the Credit-Linked Subsidy Scheme (CLSS) to support affordable housing.
  5. Considering a reduction or restructuring of GST on under-construction properties, along with adjustments to stamp duty charges.
  6. Introducing tax incentives or reforms to promote the growth of Real Estate Investment Trusts (REITs).

Realty: Stocks to Focus

Conclusion

This Union Budget season, you can keep an eye on the different sectors’ announcements and how these stocks react to this. To create a diversified portfolio, you can consider adding these stocks to your portfolio from different sectors to minimize risk and capitalize on budget benefits. Open Demat account with SMC Global Securities and explore the list of stocks to invest in now.

Reference:
SMC Global Securities Research Team

Author: All Content is verified by SMC Global Securities.

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