Modi's Budget Expected to Propel India's Surging Stocks: Survey

India's $5 trillion stock market is poised to potentially rise by up to 20% this year, driven by government expenditures and ongoing strong corporate earnings momentum, according to analysts.

Market watchers surveyed by Bloomberg believe the upcoming government budget will likely stimulate consumer spending and infrastructure development, which are positive signals for businesses.

More than half of the respondents predict the Nifty 50 Index could advance to 26,000 points by the close of 2024, with bullish expectations prevailing among several analysts.

The benchmark index has already surged 12% this year to achieve record highs.

Investors have shown increased interest in the consumer sector following recent elections, expecting the government to implement more populist measures. Favorable weather conditions, including an early monsoon, have further bolstered prospects for agricultural companies dealing with crops like rice, corn, and soybeans.

Corporate earnings in the past year benefited from margin improvements, with expectations that they will continue to grow robustly in the fiscal year 2025, maintaining India's medium-term growth outlook, according to Bino Pathiparampil, head of research at Elara Capital in Mumbai.

Survey results indicate that 13 respondents foresee strong earnings growth for Nifty components, while five cautioned that optimism regarding future earnings might be excessive.

Analysts anticipate a 15.6% year-on-year increase in earnings per share for companies in the MSCI India Index for the entirety of 2024, according to Bloomberg Intelligence data. In contrast, Chinese firms are projected to see a 10% rise in EPS over the same period.

Investor attention is now focused on the upcoming budget announcement scheduled for this month, which will outline Modi's policy priorities under a new coalition government. Half of the survey participants expect the budget to prioritize incentives for boosting consumption and maintaining a push for infrastructure spending.

A significant portion of respondents believes the government's primary focus will be on infrastructure investments, while others anticipate measures aimed at stimulating consumer demand.

The survey findings align with expectations that consumer discretionary stocks are likely to offer strong growth potential, followed by financial and commodities sectors.

Analysts from Jefferies Financial Group Inc., including Mahesh Nandurkar, noted in a June 24 memo that the government could support various sectors through increased capital expenditure, social spending, and fiscal discipline, aided by higher tax revenues and substantial dividends from the central bank.

The budget is anticipated to benefit sectors such as affordable housing, capital expenditure initiatives, consumer goods, and industries sensitive to interest rates.

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