Emkay Global has released a detailed market outlook following the Union Budget, emphasising fiscal prudence and maintaining policy continuity. The Finance Minister’s focus on capex over revenue expenditure and adherence to the fiscal consolidation path (with the fiscal deficit ending lower at 4.9% of GDP) were key highlights. Emkay Global considers the slight increase in capital gains tax inconsequential.

The budget’s direct incentives for employment are seen as a significant measure, although its impact remains uncertain. Emkay Global maintains a cautious market stance, noting vulnerability at current valuations, which could lead to short-term corrections. The preferred sectors are FMCG, IT, and Durables, while Industrials and Financials are viewed negatively.

Key budgetary aspects include a minor rise in capital gains tax and security transaction tax on derivatives, which are not expected to affect market valuations materially. Focusing on financial stability and sustained capex growth is seen as a positive driver for the ongoing bull run.

The budget’s minor changes, such as direct employment stimulus and reallocating half of the RBI dividend windfall to revenue expenditure, are viewed positively for consumption. This reinforces Emkay Global’s favorable stance on FMCG and two-wheelers.

Sector-specific impacts include benefits for the jewellery sector due to reduced gold import duties and battery players from lower import duties on critical metals. The cement and building materials sectors see marginal positives from continued housing and infrastructure stimulus. The capital market participants faced minimal impact from tax changes.

Despite a generally positive budget, Emkay Global remains cautious. The market’s current valuations are stretched, with no imminent earnings upgrades, and rate cuts are expected to be 1-2 quarters away. Emkay Global’s model portfolio remains unchanged, maintaining a preference for IT, FMCG, and Durables over Industrials and Financials.

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