PM Modi’s Budget Expected to Boost India’s Stock Market, Survey Indicates

Historical Context: India’s economic policies and budget announcements have historically played a significant role in shaping the country’s financial markets. Prime Minister Narendra Modi, who has been in office since 2014, has introduced several economic reforms aimed at boosting growth, infrastructure, and consumer spending. The annual budget is a critical event that outlines the government’s fiscal priorities and has a direct impact on market sentiment.

Article: India’s $5 trillion stock market is projected to gain up to 20% this year, driven by government spending and sustained corporate earnings growth, according to market analysts.

The forthcoming government budget is anticipated to stimulate consumer spending and infrastructure development, which are favorable for businesses. A Bloomberg survey of 24 strategists and investors revealed that more than half expect the NSE Nifty 50 Index to reach up to 26,000 points by the end of 2024, with some predicting even higher gains.

The benchmark index has already risen 12% this year, reaching a record high.

A reduced majority for Prime Minister Narendra Modi’s Bharatiya Janata Party in recent elections has led investors to increase their stakes in the consumer sector, anticipating a shift towards more populist measures to garner support. Additionally, an early monsoon has improved prospects for agricultural companies dealing with crops like rice, corn, and soybeans.

“Corporate earnings for the past year have been robust due to favorable margins and are expected to grow above trend in the financial year 2025, maintaining India’s medium-term growth trajectory,” said Bino Pathiparampil, head of research at Mumbai-based Elara Capital.

Of those surveyed, 13 predicted that earnings growth for Nifty components would remain strong, while five believed that the optimism was excessive.

Analysts forecast a 15.6% year-on-year increase in earnings per share (EPS) for companies in the MSCI India Index for 2024, compared to a 10% rise for Chinese firms, according to Bloomberg Intelligence data.

Investors are now focusing on the upcoming budget, which will outline Modi’s policy priorities under a new coalition government. Half of the survey respondents expect the administration to prioritize a mix of incentives to support consumption and continue its capital expenditure on infrastructure.

A quarter of the respondents believe that the government’s main focus will be on capital expenditure, while another quarter think boosting consumer demand will be the top priority.

The survey respondents generally agree that consumer discretionary stocks have the most promising outlook, followed by financial and commodities shares.

“The government can satisfy everyone with higher capital expenditure, social spending, and yet maintain a tighter fiscal policy,” thanks to increased tax revenue and substantial dividend payouts from the central bank, wrote Jefferies Financial Group Inc. strategists, including Mahesh Nandurkar, in a note on June 24.

The budget is expected to positively impact sectors related to affordable housing, capital expenditure, consumer goods, and rate-sensitive businesses.

Summary in Bullet Points:

• India’s stock market is projected to gain up to 20% this year, driven by government spending and corporate earnings growth.
• The upcoming budget is expected to boost consumer spending and infrastructure development.
• The NSE Nifty 50 Index could reach up to 26,000 points by the end of 2024.
• A reduced majority for Modi’s party has led to increased investment in the consumer sector.
• Early monsoon has improved prospects for agricultural companies.
• Corporate earnings are expected to grow above trend in the financial year 2025.
• Analysts forecast a 15.6% increase in EPS for MSCI India Index companies in 2024.
• Investors are focusing on the budget, which will outline Modi’s policy priorities.
• The budget is expected to prioritize a mix of consumption incentives and capital expenditure.
• Consumer discretionary stocks are seen as having the most promising outlook.
• The budget will likely benefit sectors related to affordable housing, capital expenditure, consumer goods, and rate-sensitive businesses.