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InCred Equities, a prominent brokerage house, has expressed a cautious perspective on the trajectory of the Indian equity market. Their assessment projects a sideways movement for the Nifty index, leaning towards a downward trend, maintaining their year-end target at 23,260. This cautious stance is underpinned by a careful consideration of several economic factors and policy implications stemming from the recently announced Budget 2025. The brokerage firm's strategic allocation prioritizes large-cap stocks, demonstrating a preference for established, larger companies over the perceived volatility and risk associated with smaller-cap and mid-cap investments. This selective approach reflects a risk-averse strategy in the current market climate.
A key element of InCred's analysis centers around the government's fiscal policy. While the focus on increasing disposable income to stimulate GDP growth is viewed positively as a step in the right direction, the brokerage firm underscores the need for vigilant monitoring of consumer behavior. The crucial question remains: will the policy translate into a tangible increase in consumer spending? Furthermore, the response of the Reserve Bank of India (RBI) to potential inflationary pressures arising from this policy will play a pivotal role in shaping market performance. In essence, InCred's approach emphasizes a data-driven, wait-and-see approach rather than making bold predictions based solely on policy announcements.
InCred's stock recommendations showcase their selective approach. The brokerage firm highlights a preference for specific blue-chip companies, including Britannia Industries, Hero MotoCorp, Maruti Suzuki, and Havells India. These selections likely reflect a confidence in these companies' resilience and stability in the face of economic uncertainty. Conversely, the downward trend observed in infrastructure spending has prompted InCred to issue a 'REDUCE' rating for NCC, a construction company. This decision reflects their assessment of the company's prospects within the current economic context. The contrast between their positive outlook on certain consumer-oriented companies and the negative assessment of an infrastructure-related company underscores their granular analysis and sector-specific considerations.
The Union Budget for FY26, a significant factor influencing InCred's outlook, is analyzed for its impact on fiscal consolidation. InCred notes that the budget maintains a commitment to fiscal consolidation, projecting a 40-basis point reduction in the fiscal deficit to 4.4 percent of GDP. This brings the deficit closer to pre-COVID levels, a positive development in terms of financial stability. The improvement in the quality of the fiscal deficit, achieved through reductions in subsidies, is also viewed favorably. However, a note of caution is raised regarding the government's projected 14 percent growth in tax collections, deemed ambitious by InCred. This highlights a potential discrepancy between government expectations and the brokerage's more conservative projections.
Further examination of the budget reveals a 7 percent year-on-year increase in net market borrowings and a 9.8 percent increase in capital expenditure. The latter is primarily driven by increased defense spending, while a lack of growth in road and railway sector investments is viewed as a disappointment. The budget’s policy measures, such as permitting 100 percent FDI in the insurance sector, introducing a new income tax code, and providing incentives for the MSME sector, are seen as positive steps towards long-term economic stability. However, these long-term benefits may not immediately impact short-term market performance, aligning with InCred's cautious outlook.
A significant focus of InCred's analysis is on the recovery of urban demand. The brokerage firm considers the reduction in income tax rates across various slabs as a positive development aimed at addressing the slowdown in urban consumption. These tax cuts are expected to lead to improvements in consumer credit ratings, increased discretionary spending, and a subsequent rise in private sector capital expenditure. The sectors projected to benefit most from these tax cuts include retail, consumer durables, FMCG, two-wheelers, automobiles, and hospitality. Additionally, credit expansion towards agriculture and MSMEs is expected to drive loan growth for public sector banks. However, InCred cautions that the infrastructure and capital goods sectors might experience relative underperformance. The tax reduction for propane is also flagged as a potential negative factor, potentially impacting gas consumption and distributors.
In conclusion, InCred's cautious stance on Indian equities reflects a balanced assessment of the positive and negative aspects of the Budget 2025 and the broader economic climate. Their focus on large-cap stocks, selective stock picks, and attention to potential inflationary pressures and consumer behavior highlight a pragmatic and risk-averse investment strategy. While acknowledging positive developments such as fiscal consolidation and tax cuts, InCred's analysis emphasizes the need for careful monitoring of key economic indicators before making optimistic projections about market performance. Their year-end target for the Nifty index at 23,260 underscores their conservative outlook and the need for investors to approach the market with caution.
Source: InCred maintains cautious stance on Indian equities, shares top stock picks post Budget 2025