Mumbai: The new government's economic vision and management of the "political issue" will be among the key aspects to consider in the upcoming Union Budget, a Japanese brokerage said on Thursday.
The brokerage said the second half of the year will see "moderate returns" on the equity front and reiterated its year-end target of 24,860 points in Nifty, which is only around 3 per cent higher than the levels. current.
The fiscal planning path beyond FY26, when the government has committed to reducing the fiscal deficit to 4.6 per cent, will also be a key issue to consider, Nomura Indian economist Aurodeep Nandi told reporters. .
Recalling the new government's 100-day programs prepared by various ministries ahead of the elections, Nandi said getting an idea of the new government's economic vision will be a key area to keep in mind.
After the electoral setback, the "political issue" of the new government's budget, which depends on the coalition partners, will also be closely followed, he stated.
Specifically, it will be looked at how the new government manages the demands of Bihar and Andhra Pradesh, the home base of allies Janata Dal and TDP, respectively, Nandi said.
Allies are making demands, Nandi said, adding that paying attention to them can lead to more debt, more direct transfers to citizens and also higher infrastructure spending in the pockets.
Amid growing concerns about increased spending in the social sector, Nandi recalled Finance Minister Nirmala Sitharaman's recent statement on the saturation levels being reached on that issue, adding that there is no fiscal risk for this.
He said the government has gone overboard in reducing the fiscal deficit to 5.6 per cent in FY24, against the budgeted 5.8 per cent, and also has the comfort of record dividend of Rs 2.1 lakh crore from the RBI.
The final budget may also choose to marginally reduce the fiscal deficit to 5 per cent from the interim budget target of 5.1 per cent, he said.
Nandi said the government could also try to help consumption in the economy and pointed to recent reports suggesting a review of income taxes.
Furthermore, the government's handling of the "manufacturing issue" will also be closely watched, he said, adding that this may include higher outlays and also expanding the production-linked incentive scheme to electronic components.
On the equity markets front, the brokerage's head of equity research, Saion Mukherjee, said narratives are driving the market currently and most investors are not too bothered by valuation concerns. .
The current rally is entirely driven by domestic money, and foreign investors are on the sidelines, he said, adding that more IPO activity in the second half of the year may help.
More IPO activity will reduce valuations, he said, explaining that currently, more money is chasing a limited set of options and as options increase, it will go into other bonds and help restore some sanity. .
Foreign investors are pursuing newer themes such as artificial intelligence and the rise of Japanese markets, he said.
Mukherjee said the brokerage is overweight in financial stocks, capital goods and energy, and underweight in auto and consumer discretionary sectors.
The brokerage said the second half of the year will see "moderate returns" on the equity front and reiterated its year-end target of 24,860 points in Nifty, which is only around 3 per cent higher than the levels. current.
The fiscal planning path beyond FY26, when the government has committed to reducing the fiscal deficit to 4.6 per cent, will also be a key issue to consider, Nomura Indian economist Aurodeep Nandi told reporters. .
Recalling the new government's 100-day programs prepared by various ministries ahead of the elections, Nandi said getting an idea of the new government's economic vision will be a key area to keep in mind.
After the electoral setback, the "political issue" of the new government's budget, which depends on the coalition partners, will also be closely followed, he stated.
Specifically, it will be looked at how the new government manages the demands of Bihar and Andhra Pradesh, the home base of allies Janata Dal and TDP, respectively, Nandi said.
Allies are making demands, Nandi said, adding that paying attention to them can lead to more debt, more direct transfers to citizens and also higher infrastructure spending in the pockets.
Amid growing concerns about increased spending in the social sector, Nandi recalled Finance Minister Nirmala Sitharaman's recent statement on the saturation levels being reached on that issue, adding that there is no fiscal risk for this.
He said the government has gone overboard in reducing the fiscal deficit to 5.6 per cent in FY24, against the budgeted 5.8 per cent, and also has the comfort of record dividend of Rs 2.1 lakh crore from the RBI.
The final budget may also choose to marginally reduce the fiscal deficit to 5 per cent from the interim budget target of 5.1 per cent, he said.
Nandi said the government could also try to help consumption in the economy and pointed to recent reports suggesting a review of income taxes.
Furthermore, the government's handling of the "manufacturing issue" will also be closely watched, he said, adding that this may include higher outlays and also expanding the production-linked incentive scheme to electronic components.
On the equity markets front, the brokerage's head of equity research, Saion Mukherjee, said narratives are driving the market currently and most investors are not too bothered by valuation concerns. .
The current rally is entirely driven by domestic money, and foreign investors are on the sidelines, he said, adding that more IPO activity in the second half of the year may help.
More IPO activity will reduce valuations, he said, explaining that currently, more money is chasing a limited set of options and as options increase, it will go into other bonds and help restore some sanity. .
Foreign investors are pursuing newer themes such as artificial intelligence and the rise of Japanese markets, he said.
Mukherjee said the brokerage is overweight in financial stocks, capital goods and energy, and underweight in auto and consumer discretionary sectors.
