JPMorgan-India Equity Strategy A budget for all-109288310

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Global Markets Strategy

18 July 2024

JPMORGAN

www.jpmorganmarkets.com

Equity Macro Research

Rajiv Batra AC

(65) 6882-8151

rajiv.j.batra@jpmorgan.com

J.P. Morgan Securities Singapore Private Limited

Rushit Mehta

(9122) 6157-3711

rushit.mehta@jpmchase.com

J.P. Morgan India Private Limited, J.P. Morgan

Tower, Santacruz(E), Mumbai - 400098, SEBI

Registration: INH000001873, (91-22) 6157-3000.

Mixo Das

(852) 2800-0511

mixo.das@jpmorgan.com

J.P. Morgan Securities (Asia Pacific) Limited/ J.P.

Morgan Broking (Hong Kong) Limited

Chief India Economist

Sajjid Z Chinoy

(91-22) 6157-3386

sajjid.z.chinoy@jpmorgan.com

JPMorgan Chase Bank, N.A., Mumbai Branch

The Union Budget for fiscal year 2024-25 will be presented by Finance Minister

Nirmala Sitharaman in the Lok Sabha on 23 July. We believe the first budget of the

NDA government’s third term should lay out the vision for the next five years, as

it did in the previous two terms, and be a stepping stone toward a “Viksit Bharat”

(Developed India) by 2047, as presented in the interim budget in February

(Revisiting the Interim Budget 2024-25). As in previous years and in the interim

budget, the upcoming budget will be focused on infrastructure and public

investment, in our view. This should continue to support local manufacturing,

defense, railways, waterways and the power sector. The extra RBI dividend allows

authorities to increase targeted welfare spending and still stick to the fiscal

consolidation path (Consolidation without compression). On the other hand, any

change in capital gains tax rates or holding periods will likely be adversely viewed

by the markets, in our view. Going into the budget, our sector allocation remains

aligned largely with domestic cyclical plays amid positive earnings momentum,

superior economic growth and policy continuity. We remain Overweight on

Industrials, Financials, Autos, Real Estate and Healthcare.

•Capex thrust to sustain. Post-election-results, the government has hit the

ground running by announcing infrastructure projects and higher spending on

government programs (see pp.7-8 for details). The Nifty 50 has recovered by

a strong 12.5% and India equities have witnessed US$6.5bn of net inflows from

foreign investors since vote-counting day on 4 June. With no change in the

portfolios of major ministries and strong support from the coalition, the

government is likely to maintain its capex outlay of INR11.11tn for FY25, in

our view. With private capex yet to take off meaningfully, a continued thrust

on government capex is key for the long-term agenda of the government for a

“Viksit Bharat” by 2047. The PLI scheme’s expansion to additional sectors and

the introduction of a dedicated scheme for SMEs are keenly watched by

investors. Five long-term themes to focus on: (1) indigenous defense; (2)

waterways; (3) manufacturing renaissance; (4) affordable housing; and (5)

savers to investors (Long-term themes to focus on).

•Fiscal freedom to focus on rural. The higher-than-expected RBI dividend of

INR2.1tn gives the government a fiscal cushion of 35-40 basis points as a ratio

to gross domestic product (GDP). The government can continue its fiscal

consolidation path without expenditure compression. This excess windfall

along with strong tax collections even allows some room for boosting

consumption. A few government welfare schemes (PMAY, PM Kissan

Samman Nidhi, recent MSP hikes) along with controlled inflation will help

revive the rural economy, in our view. A marginal cut in income tax is also

expected, which should lend some support to the lower/middle class. The

NIFTY FMCG Index has thus narrowed its relative underperformance

following national election results, helped additionally by a narrowing

monsoon deficit in recent weeks. That said, we remain selective in the

consumer staples sector and note that extreme heatwave conditions adversely

affect some consumption segments.

See page 13 for analyst certification and important disclosures, including non-US analyst disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that

the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single

factor in making their investment decision.

India Equity Strategy

A budget for all?

Rajiv Batra AC

(65) 6882-8151

rajiv.j.batra@jpmorgan.com

Global Markets Strategy

18 July 2024 JPMORGAN

•3Q/4Q market direction. We believe the market will continue to track our bull-case

scenario (Nifty - 25000) over the next couple of months and that investors will be

watching budget announcements, progress on monsoon (link) and the ongoing 1QFY25

earnings season (link). However, changes in spending patterns during shraadh

(September), upcoming state assembly elections (Maharashtra, Haryana and Jharkhand)

and U.S. elections could lead to consolidation from end 3Q - early 4Q this year. Asian

equities have historically struggled heading into U.S. elections (link).

•J.P. Morgan sector allocation. Overweight sectors are Financials (ICICI Bank, Kotak

Bank, State Bank of India, Bank of Baroda, LIC Housing Finance, Shriram Finance,

HDFC AMC, ICICI Pru, ICICI Lombard), Autos (Bajaj Auto, Mahindra & Mahindra,

Ashok Leyland, Exide, Samvardhana Motherson), Real Estate (Godrej Properties,

Prestige), Healthcare (Mankind, Abbott India, Sun Pharma, Max Healthcare, Rainbow

Hospitals), Industrials and select Consumer names (HUVR, Colgate and Nestlé).

Underweight sectors are IT and Materials.

Figure 1: GDP growth continues to surprise

positively

GDP at market prices

-8

-6

-4

-2

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

Source: CMIE.

Figure 2: Climbing capex

3.2%

3.4%

21.2%

23.3%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

% of Total Expenditure

% of GDP

Capital expenditure (% of GDP) Capital expenditure (% of Total Expenditure by Center) (RHS)

Source: CMIE.

Figure 3: Center’s fiscal deficit as a % of GDP

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Source: CMIE.

Figure 4: RBI’s dividend history

% of GDP

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

FY18 FY19 FY20 FY21 FY22 FY23 FY24

Source: CMIE, RBI.

Figure 5: MNREGA household work demand

(monthly)

Millions

Source: CMIE.

Figure 6: Rural spending as a % of GDP

0.2

0.4

0.6

0.8

1.2

1.4

1.6

1.8

FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25BE

Source: Budget documents.

Rajiv Batra AC

(65) 6882-8151

rajiv.j.batra@jpmorgan.com

Global Markets Strategy

18 July 2024 JPMORGAN

Figure 7: Earnings tracking GDP more closely

Source: MSCI, Refinitiv, CMIE, J.P. Morgan Economics.

Figure 8: MSCI India’s EPS growth

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

EPS growth (%oya) Average

Source: MSCI, Refinitiv, J.P. Morgan.

Figure 9: Combined deficit of Center and States (%

of GDP)

Source: MoF, RBI.

Figure 10: Capex to revenue expenditure

Source: RBI, Budget docs, J.P. Morgan. Note: Revenue expenditure

excludes interest payments.

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GlobalMarketsStrategy18July2024JPMORGANwww.jpmorganmarkets.comEquityMacroResearchRajivBatraAC(65)6882-8151rajiv.j.batra@jpmorgan.comJ.P.MorganSecuritiesSingaporePrivateLimitedRushitMehta(9122)6157-3711rushit.mehta@jpmchase.comJ.P.MorganIndiaPrivateLimited,J.P.MorganTower,Santacruz(E),Mumbai-400098,S...

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