{"id":28822,"date":"2024-02-02T16:57:36","date_gmt":"2024-02-02T11:27:36","guid":{"rendered":"https:\/\/www.fundsindia.com\/blog\/?p=28822"},"modified":"2024-02-02T16:57:37","modified_gmt":"2024-02-02T11:27:37","slug":"india-interim-budget-fy25-continued-emphasis-on-capex-and-fiscal-consolidation","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-basics\/investment-definitions\/india-interim-budget-fy25-continued-emphasis-on-capex-and-fiscal-consolidation\/28822","title":{"rendered":"India Interim Budget FY25 \u2013 Continued Emphasis on Capex and Fiscal Consolidation"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2.jpg\"><img loading=\"lazy\" width=\"1024\" height=\"512\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2-1024x512.jpg\" alt=\"\" class=\"wp-image-28823\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2-1024x512.jpg 1024w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2-300x150.jpg 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2-768x384.jpg 768w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2-1536x768.jpg 1536w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Research-Call-2024_Feb_Page-Banner-2-2048x1024.jpg 2048w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure>\n\n\n\n<h3><strong>Key Highlights<\/strong><strong><br><\/strong><\/h3>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">1<\/span>. <span style=\"color:#b45f06\" class=\"has-inline-color\">Continuing on the path of Fiscal Consolidation &nbsp;<\/span><\/strong><\/h4>\n\n\n\n<ul><li><strong>Projected fiscal deficit<\/strong> at <strong>5.1%<\/strong> <strong>of GDP <\/strong>for FY25 \u2013 in line with the original fiscal consolidation glide path \u2013 to <strong>reduce fiscal deficit to 4.5% of GDP by FY26<\/strong><\/li><\/ul>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">2. Strong thrust on Capital Expenditure (Infrastructure)&nbsp;<\/span><\/strong><\/h4>\n\n\n\n<ul><li><strong>17% <\/strong>increase in<strong> Capital Expenditure <\/strong>from Rs 9.5 lakh cr in FY24 (RE) (i.e 3.2% of GDP) to <strong>Rs 11.1 lakh cr <\/strong>in<strong> FY25 (i.e 3.4% of GDP)<\/strong><br><\/li><li>Major focus is on: <strong>Roads &amp; Bridges<\/strong>, <strong>Railways &amp;<\/strong> <strong>Defence&nbsp;<\/strong><\/li><\/ul>\n\n\n\n<h4><strong><span style=\"color:#a34c00\" class=\"has-inline-color\">3. No change in personal income tax slabs, both new and old regimes to continue<\/span><\/strong><\/h4>\n\n\n\n<h4><strong><br><span style=\"color:#b45f06\" class=\"has-inline-color\">4. No changes to equity and mutual fund taxation<\/span><\/strong><\/h4>\n\n\n\n<p><\/p>\n\n\n\n<h3><strong><span style=\"color:#0b5394\" class=\"has-inline-color\">Budget in Visuals <\/span><\/strong><\/h3>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">Where does the money come from?&nbsp;<\/span><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-3.png\"><img loading=\"lazy\" width=\"1005\" height=\"560\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-3.png\" alt=\"\" class=\"wp-image-28837\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-3.png 1005w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-3-300x167.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-3-768x428.png 768w\" sizes=\"(max-width: 1005px) 100vw, 1005px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">Where does the money go?&nbsp;<\/span><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-4.png\"><img loading=\"lazy\" width=\"890\" height=\"401\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-4.png\" alt=\"\" class=\"wp-image-28838\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-4.png 890w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-4-300x135.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-4-768x346.png 768w\" sizes=\"(max-width: 890px) 100vw, 890px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">How is the deficit financed?&nbsp;<\/span><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-5.png\"><img loading=\"lazy\" width=\"832\" height=\"375\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-5.png\" alt=\"\" class=\"wp-image-28839\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-5.png 832w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-5-300x135.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-5-768x346.png 768w\" sizes=\"(max-width: 832px) 100vw, 832px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">Fiscal Consolidation On Track<\/span><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image.png\"><img loading=\"lazy\" width=\"980\" height=\"478\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image.png\" alt=\"\" class=\"wp-image-28825\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image.png 980w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-300x146.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-768x375.png 768w\" sizes=\"(max-width: 980px) 100vw, 980px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">Tax Receipts as a % of GDP remains stable<\/span><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Tax-Rcpt-Trend.png\"><img loading=\"lazy\" width=\"945\" height=\"483\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Tax-Rcpt-Trend.png\" alt=\"\" class=\"wp-image-28826\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Tax-Rcpt-Trend.png 945w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Tax-Rcpt-Trend-300x153.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Tax-Rcpt-Trend-768x393.png 768w\" sizes=\"(max-width: 945px) 100vw, 945px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">Thrust on Capex Continues<\/span><\/strong><\/h4>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-1.png\"><img loading=\"lazy\" width=\"947\" height=\"491\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-1.png\" alt=\"\" class=\"wp-image-28828\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-1.png 947w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-1-300x156.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-1-768x398.png 768w\" sizes=\"(max-width: 947px) 100vw, 947px\" \/><\/a><\/figure>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-2.png\"><img loading=\"lazy\" width=\"1012\" height=\"471\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-2.png\" alt=\"\" class=\"wp-image-28829\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-2.png 1012w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-2-300x140.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/image-2-768x357.png 768w\" sizes=\"(max-width: 1012px) 100vw, 1012px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">With a focus on Defence, Roads and Railways&nbsp;<\/span><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Capex-Table.png\"><img loading=\"lazy\" width=\"976\" height=\"372\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Capex-Table.png\" alt=\"\" class=\"wp-image-28830\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Capex-Table.png 976w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Capex-Table-300x114.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Capex-Table-768x293.png 768w\" sizes=\"(max-width: 976px) 100vw, 976px\" \/><\/a><\/figure><\/div>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">Food, Fuel and Fertiliser Subsidies fall to 5 year low<\/span><br><\/strong><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><a href=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Subsidy.png\"><img loading=\"lazy\" width=\"877\" height=\"457\" src=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Subsidy.png\" alt=\"\" class=\"wp-image-28833\" srcset=\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Subsidy.png 877w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Subsidy-300x156.png 300w, https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2024\/02\/Subsidy-768x400.png 768w\" sizes=\"(max-width: 877px) 100vw, 877px\" \/><\/a><\/figure><\/div>\n\n\n\n<h3><strong><span style=\"color:#0b5394\" class=\"has-inline-color\">What\u2019s in it for you? <\/span><br><\/strong><\/h3>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">1. No change in personal income tax slabs, both new and old regimes to continue<\/span><\/strong><\/h4>\n\n\n\n<h4><strong><span style=\"color:#b45f06\" class=\"has-inline-color\">2. No change in Taxation for equity, equity mutual funds and other non-equity mutual funds<\/span><br><\/strong><\/h4>\n\n\n\n<h3><strong><span style=\"color:#0b5394\" class=\"has-inline-color\">Equity View: Growth remains the priority \u2013 Positive for Equity Markets<\/span><\/strong><\/h3>\n\n\n\n<p>The Interim Union Budget FY25 was a non-event for equity markets with no negative surprises.&nbsp;<\/p>\n\n\n\n<p><strong>We continue with our POSITIVE view on Equities with a 5-7 year horizon.&nbsp;<\/strong><\/p>\n\n\n\n<p>Our Equity view is derived based on our<strong> 3 signal framework<\/strong> driven by<\/p>\n\n\n\n<ol><li>Earnings Cycle&nbsp;<\/li><li>Valuation&nbsp;<\/li><li>Sentiment<\/li><\/ol>\n\n\n\n<p>As per our current evaluation we are at&nbsp;<\/p>\n\n\n\n<p><strong>MID PHASE OF EARNINGS CYCLE + VERY EXPENSIVE VALUATIONS +&nbsp; NEUTRAL SENTIMENTS<\/strong><\/p>\n\n\n\n<ul><li><strong>MID PHASE OF EARNINGS CYCLE<br>We expect a robust earnings growth environment over the next 3-5 years.<\/strong> This expectation is led by Manufacturing Revival, Banks \u2013 Improving Asset Quality &amp; pickup in loan growth, Revival in Real Estate, Government\u2019s focus on Infra spending (which continues in FY24 Budget), Early signs of Corporate Capex, Structural Demand for Tech services, Structural Domestic Consumption Story, Consolidation of Market Share for Market Leaders, Strong Corporate Balance Sheets (led by Deleveraging) and Govt Reforms (Lower corporate tax, Labour Reforms, PLI) etc.<br><\/li><li><strong>VERY EXPENSIVE VALUATIONS<br>FundsIndia Valuemeter<\/strong> based on MCAP\/GDP, Price to Earnings Ratio, Price To Book ratio and Bond Yield to Earnings Yield has reduced from 95 last month to <strong>91 <\/strong>(as on 31-Jan-2024) &#8211; but remains in the <strong>\u00a0\u2018Very Expensive\u2019 Zone<br><\/strong><\/li><li><strong>NEUTRAL SENTIMENTS<br><\/strong>This is a <strong>contrarian indicator<\/strong> and we become positive when sentiments are pessimistic and vice versa <strong>\u00a0<br><\/strong><\/li><li><strong><span style=\"color:#38761d\" class=\"has-inline-color\">DII flows continue to be strong on a 12-month basis. DII Flows have a structural tailwind in the form of<\/span><\/strong><\/li><\/ul>\n\n\n\n<ol><li>Savings moving from Physical to Financial assets<\/li><li>Emerging \u2018SIP\u2019 investment culture<\/li><li>EPFO Equity investments<\/li><\/ol>\n\n\n\n<ul><li><strong>FII flows <\/strong>continue to be negative. <strong>Between Oct-21 and Jun-22<\/strong>, <strong>FIIs took out Rs 2.6 lakh cr<\/strong> from Indian equities. Of this, <strong>Rs 2.4 lakh cr has come back<\/strong> since Jul-22 &#8211; indicates significant scope for higher FII inflows. FII flows can improve in CY24 led by 1. Peaking USD and interest rates 2. May&#8217;24 elections and 3. Rising significance of India in global markets.<\/li><\/ul>\n\n\n\n<ul><li><strong><span style=\"color:#38761d\" class=\"has-inline-color\">Periods of weak FII flows have historically been followed by strong equity returns over the next 2-3 years (as FII flows eventually come back in the subsequent periods).<\/span><\/strong><\/li><\/ul>\n\n\n\n<ul><li><strong>IPOs <\/strong>&#8211;<strong> Sentiments<\/strong> has slowly<strong> started <\/strong>to <strong>revive <\/strong>with most recent <strong>IPOs <\/strong>getting <strong>oversubscribed. But no signs of euphoria except for the SME segment.<\/strong><\/li><\/ul>\n\n\n\n<ul><li><strong>Past 5Y Annual Return <\/strong>is at<strong> 16% <\/strong>(Nifty 50 TRI) &#8211; in line with long term averages and nowhere close to what investors experienced in the 2003-07 bull market (45% CAGR)<\/li><\/ul>\n\n\n\n<ul><li><strong>Overall the sentiments are neutral and <\/strong>we see<strong> no signs of \u2018Euphoria\u2019<\/strong><strong><br><\/strong><\/li><\/ul>\n\n\n\n<h3><strong><span style=\"color:#0b5394\" class=\"has-inline-color\">Fixed Income View: Fiscal Consolidation continues + Lower Market Borrowing -&gt; Positive for Debt Markets<\/span><\/strong><\/h3>\n\n\n\n<p><strong>Fiscal Consolidation continues:<\/strong><strong> <\/strong><strong><br><\/strong>The Fiscal Deficit for FY25 at<strong> 5.1% of GDP<\/strong> adheres to the <strong>fiscal glide path. The finance minister <\/strong>reiterated the government\u2019s commitment to bring it down to <strong>4.5% of GDP<\/strong> by <strong>FY26.<\/strong><br><br><strong>Lower Market Borrowing compared to previous year:<\/strong><strong> <\/strong><strong><br><\/strong>Gross Market Borrowing in FY25 is lower at INR<strong> 14.1 lakh crores <\/strong>vs 15.4 lakh crores in FY24.&nbsp;<\/p>\n\n\n\n<p><strong>-&gt; FundsIndia View: Budget is positive for Bonds. Expect interest rates to gradually come down over the next 12-18 months<\/strong><\/p>\n\n\n\n<p><strong>Why do we expect interest rates to come down? <\/strong><\/p>\n\n\n\n<ul><li><strong>Inflation under control:&nbsp;<\/strong><ul><li>India\u2019s <strong>Dec-23 CPI inflation<\/strong> at <strong>5.7% is within RBI\u2019s tolerance band (2-6%). Core CPI<\/strong> (excl Food &amp; Energy) <strong>remains comfortable <\/strong>at<strong> 3.9%. <\/strong>RBI forecasts<strong> <\/strong>FY25 inflation to be much lower at 4.5% led by global growth slowdown and broad-based moderation in the domestic core inflation basket.<br><\/li><\/ul><\/li><li><strong>Interest Rates well above expected inflation:<\/strong><ul><li><strong>Repo Rate<\/strong> at<strong> 6.50%<\/strong> is<strong> comfortably<\/strong> <strong>above <\/strong>the <strong>RBI\u2019s expected inflation (4.5% for FY25) <\/strong>&#8211; leaves the positive real policy rates at an elevated&nbsp; 200 bps giving enough room for RBI to reduce interest rates by ~50-75 bps over time.<strong><br><\/strong><\/li><\/ul><\/li><li><strong>FED expected to cut interest rates:&nbsp;<\/strong><ul><li><strong>Global growth slowdown <\/strong>&amp; Early signs of <strong>US inflation easing <\/strong>increase the odds of<strong> FED reducing interest rates&nbsp;<\/strong><\/li><li>Fed has already hinted at few rate cuts this year<br><\/li><\/ul><\/li><li><strong>Favorable Demand-Supply Equation:<\/strong><ul><li><strong>Demand -&gt; Higher FII inflows -&gt; Indian Government Bonds included<\/strong> in <strong>JP Morgan\u2019s global bond market index&nbsp; with expected inflow of ~USD 20-25 bn in FY25<\/strong> <strong>+ possibility of inclusion in Bloomberg and FTSE indices&nbsp;&nbsp;<\/strong><\/li><li><strong>Supply -&gt; <\/strong>Gross Market Borrowing in FY25 is lower at INR<strong> 14.1 lakh crores <\/strong>vs 15.4 lakh crores in FY24.&nbsp;<\/li><\/ul><\/li><\/ul>\n\n\n\n<p><strong><br><\/strong><strong>How to invest? <\/strong><strong><br><\/strong><strong><br><\/strong><strong>3-5 year bond yields (GSec\/AAA) continue to remain attractive.&nbsp;<\/strong><\/p>\n\n\n\n<p>We prefer debt funds with&nbsp;<\/p>\n\n\n\n<ul><li>High Credit Quality (&gt;80% AAA exposure)<\/li><li>Short Duration or Target Maturity Funds (3-5 years)<\/li><\/ul>\n\n\n\n<p><strong>Consider tactically investing in a debt fund with a long duration (7-10 years) and high credit quality (&gt;90% AAA) if you have a higher risk appetite and anticipate declining yields over the next 12-18 months.<\/strong> This strategy, with a 1-2 year timeframe, can potentially yield substantial gains in a falling interest rate scenario.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Key Highlights 1. Continuing on the path of Fiscal Consolidation &nbsp; Projected fiscal deficit at 5.1% of GDP for FY25 \u2013 in line with the original fiscal consolidation glide path \u2013 to reduce fiscal deficit to 4.5% of GDP by FY26 2. Strong thrust on Capital Expenditure (Infrastructure)&nbsp; 17% increase in Capital Expenditure from Rs [&hellip;]<\/p>\n","protected":false},"author":49,"featured_media":28823,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[506,509,376],"tags":[90,891,243,900,718,517,587,289,148,521],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v17.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>India Interim Budget FY25 \u2013 Continued Emphasis on Capex and Fiscal Consolidation<\/title>\n<meta name=\"description\" content=\"The focus remains on capital expenditure that can drive a multiplier impact on economic growth and employment.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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