Budget 2024: Following the interim Budget, may consumer stocks gain popularity again?
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| Budget 2024: Following the interim Budget, may consumer stocks gain popularity again? |
The consumerism theme has a bright future ahead of it, according to analysts, because of expanding middle class, youthful population, and rising earnings.
According to analysts, rising economic trends often result in higher levels of consumer confidence.
With the impending elections and interim budget in India, observers are cautiously hopeful about a potential recovery in consumer shares.
Widely regarded as defensive investments, consumption stocks are anticipated to regain support and provide investors stability in spite of the market's increasing volatility in the run-up to the elections. The government is anticipated to put more of an emphasis on consumer spending and demand as well as initiatives to boost rural growth, which is underperforming in comparison to metropolitan markets.
India's consumer narrative is still underdeveloped and requires assistance. As to Amar Dev Singh, senior vice president of research at brokerage company Angel One, out of 1.4 billion people, demand is mostly distributed among around 100 million individuals. "Two-wheeler sales, a key indicator of mass consumption, remains below the pre-pandemic peak, signifying an overall struggle in boosting consumption across the population," he said.
"The outlook remains upbeat on the long-term prospects of voluntary consumption, in spite of near-term weaknesses in urban segments like IT and startup funding challenges," said Shirsham Gupta, director as well as senior technical analyst at brokerage Rupeezi.
The budget may make rural demand rise.
Therefore, it is anticipated that the interim budget would be populist, since the government will probably want to increase residents' disposable income, which will increase expenditure.
According to Omkar Kamtekar, research analyst at stockbroking company Bonanza Portfolio, raising the MSP (minimum support price) of important crops is one approach to achieve this. Apart from this, the taxpayers might get various exemptions or concessions, according to Kamtekar.
A significant emphasis on infrastructure would also help consumption overall, according to Vincent Kaye, research analyst at Geojit Financial Services. It is important to remember that political parties and the government spend large sums of money during elections, which might increase consumer spending.
Nevertheless, there will be a price for the rise in demand. "The government also has to manage the fiscal deficit, however this may not be the government's main concern right now heading of the crucial elections," Singh said. It is anticipated that the current fiscal year would have a budget deficit of more than 5.90 percent, maybe even approaching 6 percent.
Nonetheless, it is unlikely that any significant policy pronouncements would be included in the interim budget since it will be delivered in an election year. "Overall, the interim budget could be a variable budget, as high-profile policies were unlikely to be announced," Kamtekar said.
GDP and MNREGA raised consumer expenditure.
Analysts speculate that increased funding for social programs, agricultural loans, PM Awas Yojana (affordable housing), food security, and MNREGA, as well as a potential emphasis on rural development, might raise rural incomes and increase consumption.
The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) has been shown to have a favorable effect on agricultural earnings, consumer expenditures, energy intake, and wealth accumulation.
Moreover, the policy and economic think tank ICRIER proposed in October 2023 to raise the maximum amount of the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) plan, which provides farmers with supplementary income assistance, to Rs 6,000. Will raise the monthly payment to Rs 10,000. family, which hasn't been put into practice yet. Moreover, this will support the revival of rural consumption.
Barclays claims there is a strong correlation between GDP and consumption. "India's private consumption expenditure has traditionally been a key driver of economic growth, which will contribute 58 per cent of GDP in 2022," the global lender said.
As India's GDP has developed, the country's consumption profile has gradually shifted more towards discretionary items.
discretionary spending
The shift in priorities for Indian families accelerated between 1988 and 1997 and between 2005 and 2011. In both cases, there was double-digit rise in India's per capita GDP.
Barclays forecasted a significant shift away from necessary expenditure and toward greater discretionary spending as GDP and per capita income rise.
Will consumption stocks profit from this?
If the incumbent party is re-elected, the interim budget could reveal its ambitions for the next term. Thus, a boost in consumer shares might result from the Budget's good signals for the industry, according to Gupta.
In addition to policies, Parth, the founder of discount brokerage Tradingo, said that employment rates and general economic development also contribute to the success of consumer stocks. Positive economic developments often result in more customer confidence and spending, which helps local businesses, according to Nyati.He said that fresh interest in and investment in consuming stocks may result from the Budget's proposed beneficial measures for the consumer sector.
Singh claims that investors saw strong returns from the consumption sector, as seen by the Nifty India Consumption Index's annual gain of around 30%. "Except HUL, Marico etc, major majors performed strongly," he said.
Methods
The consumerism theme has a bright future ahead of it, according to analysts, because of expanding middle class, youthful population, and rising earnings.
Head of research at brokerage site Stockbox Manish Choudhary noted that rising advertising spending, rising premiumization across goods, and declining raw material costs are all contributing to volume growth.
"The optimism (for the consumption sector) stems from the fact the same way that individuals spend more on non-essential items once their mean annual salary reaches a certain level," Gupta said.
