Expert view: Rural housing, irrigation, ELI, Jan Dhan to be in focus in Budget 2025, says Mohit Khanna of Purnartha | Stock Market News

Expert view: Mohit Khanna, CFP, Fund Manager at Purnartha PMS, believes the Union Budget 2025 will focus on youth, women, the poor, and farmers. He expects higher spending on rural housing, irrigation, ELI (employment-linked incentives), Jan Dhan, etc. In an interview with Mint, Khanna also shared his views on the Indian stock market.

Edited excerpts:

What are your expectations from Budget 2025? Should we expect it to boost market sentiment?

In her Budget speech in July’24, Finance Minister Nirmala Sitharaman had set a fiscal deficit target of 4.9 per cent for FY25 and below 4.5 per cent for FY26.

Since then, the revenue growth for the government has been steady (+15.9 per cent YoY growth in the net direct tax collection FYTD (financial year till date) till 12th Jan 25), but the actual spending has lagged. This indicates that the government would likely over-achieve its FY25 fiscal deficit target and, as a result, will have relatively more money to spend in FY26.

Overall, I expect the government to continue its capital and infrastructure spending program in line with recent years. This indicates 3.4 per cent to 3.5 per cent of the GDP.

What could be new in this Budget could be the government’s increased focus on youth, women, the poor, and farmers.

The FM highlighted this in her last Budget speech as well. Therefore, I expect higher spending on rural housing, irrigation, ELI (employment-linked incentives), Jan Dhan, etc.

What sectors could be in focus in the Budget?

Instead of sectors, we are betting on emerging themes. In this regard, rural recovery could be a strong outperformer.

Inflation is trending down, which should help the RBI reduce interest rates. Lower interest rates, along with increased budgetary allocations, could kick-start arecovery in rural incomes and the economy.

Industries like irrigation pipes, rural housing, 2W, FMCG, etc., could benefit from this trend.

Additionally, growth in the government’s capital expenditure should benefit themes like power – traditional and renewable generation and transmission, railways – modernisation and safety and mass transportation like metro, etc.

What is your view on the current market structure? Should we expect a sustainable rally after this significant correction?

Indian markets are navigating fierce volatility emanating from various internal and external factors.

US President Donald Trump has just assumed office and is politically stronger than ever. He passed a slew of orders on his first day itself.

Markets need time to digest and adjust to the new politico-economic order in the World’s largest economy.

This adjustment process has already sent US bond yields higher in recent weeks, even after the US Fed’s rate reduction action.

Higher US bond yields make emerging equity markets unattractive for foreign investors, who have sold Indian equities in hordes.

Internally, the uncertainty regarding the Q3FY25 earnings, Q4FY25 outlook, Union Budget and its implementation are also taking a toll on the markets.

In this situation, I do not expect a runaway rally in the Indian markets.

The current market structure calls for pure-play bottom-up investing and focusing on companies that can maintain earnings growth momentum by solidly executing the already swelled-up order books.

Indian investors should use volatility to buy into strong businesses at a reasonable valuation.

What are the top triggers that will move the markets?

The factors causing the current volatility (as highlighted in my reply above) will ultimately become the top triggers to move the markets in either direction.

I sense that we should be moving towards a world with low energy prices and interest rates, like President Trump’s first tenure.

Do we have valuation comfort in the mid and small-cap segments?

Even after the recent correction, we still see some segments of the mid-small-cap space trading at higher valuations. 

In certain cases, it’s just a ‘hope trade’ which can be very risky. As I said before, we continue to focus on individual stocks/companies that have a solid order book and are likely to deliver strongly in terms of executing that order book. 

Many companies with two to three to four years of order book have corrected 20 percent+ in this correction, which provides a good entry point from a two to three-year investment perspective.

What should be our investment strategy at this juncture? Is it time to chase value and not momentum?

It is a volatile market which calls for bottom-up investing rather than just looking at valuations or momentum. Let me explain this via two examples.

Example 1: The chemical sector has been underperforming for the past few quarters. As a result, valuations in the sectors are relatively attractive. 

However, there are still issues with the supply chain (glut, RM volatility, etc.), and demand recovery has still not been confirmed in many cases. Such investments would lead to a longer-than-expected gestation period, which can be a ‘test of patience.’ 

Even then, we are unsure which sub-segment of the chemical sector would recover first and sustainably. Thus, ‘value’ should be accompanied by a ‘catalyst.’

Example 2: If momentum stocks/companies cannot maintain an earnings growth trajectory in the upcoming results/quarters, their stock prices could substantially decline. 

This is because these stocks are still relatively expensive even after the recent correction. 

We have seen this phenomenon already unfolding in the ongoing Q3FY25 earnings season so far. 

Whether it is an outperforming sector like IT or an underperforming sector like Banking, markets only reward the continuity of the earnings momentum. Thus, making a blanket momentum-style investment decision could be risky.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.