Union Budget 2025 Impact: Key Sector Analysis & Market Reactions

02 February 2025
3 min read
 Union Budget 2025 Impact: Key Sector Analysis & Market Reactions
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The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has led to a mixed reaction in the stock market, with significant impacts on various sectors. The budget aimed to boost consumption and 'Make in India' initiatives, leading to notable fluctuations across different industries. Here's a detailed look at how the budget has influenced key sectors:

Stock Market Overview

The stock market experienced high volatility on the day of the budget announcement, ultimately closing flat.

  • Sensex closed marginally higher (0.97%) 77,505.96
  • Nifty 50 settled at 23,482.15.
  • Broader markets showed mixed results: Nifty Smallcap 100 rose by 0.41%, while Nifty Midcap 100 fell by 0.42%.

The market saw strong fluctuations, with initial plunges followed by recovery, indicating uncertainty among investors.

FMCG Sector

The Fast-Moving Consumer Goods (FMCG) sector is expected to benefit significantly from the budget.

  • Tax Relief: The reduction in income tax, with no tax payable for those earning up to ₹12 lakh (₹12.75 lakh for salaried individuals with standard deduction), will increase disposable income, boosting consumption.
  • Agricultural Reforms: Initiatives like the Dhan Dhanya Krishi Yojna and a focus on high-yield seeds are expected to enhance farmer income and boost rural consumption.
  • Stock Performance: FMCG stocks like HUL, Godrej Consumer Products, Trent, Voltas, ITC, and DMart saw gains. The BSE FMCG Index increased by 4.86% following agricultural reforms.

Beneficiaries: Companies such as HUL, ITC, Dabur, and Nestle, as well as their suppliers like Polyplex and Uflex, are expected to gain.

Real Estate Sector

The real estate sector is also expected to see positive developments.

  • Affordable Housing: The government's focus on affordable housing, including the Pradhan Mantri Awas Yojana (PMAY), will drive demand for construction materials and labor.
  • Increased Disposable Income: The reduction in income tax will enhance disposable income, benefiting both affordable and mid-income housing segments
  • SWAMIH Fund: The introduction of a second tranche of the SWAMIH Fund will provide liquidity to stressed residential projects, supporting the completion of 40,000 additional housing units.

Mobile Phone Industry

The mobile phone industry is set to benefit from reduced import duties and the 'Make in India' initiative:

  • Reduced Import Duties: Import duties on components like printed circuit board assemblies, camera modules, connectors, microphones, receivers, fingerprint readers, USB cables, and wired headsets have been reduced to nil.
  • Lithium-ion Batteries: The import duty on 28 capital goods used in manufacturing lithium-ion batteries for mobile phones has also been removed.
  • Manufacturing Hub: These measures aim to strengthen India's position as a global electronics manufacturing hub, promoting cost efficiency and localization.
  • No Price Impact for Consumers: The duty reductions on raw materials are negligible in total production cost, so there will be no price impact for consumers.

Gold and Precious Metals

The gold sector has seen some mixed reactions following the budget.

  • MCX Gold Prices: Reached a record high of ₹82,750 per after the budget.

Automobile Sector

The automobile sector is influenced by several budget proposals, particularly concerning electric vehicles (EVs).

  • EV Battery Manufacturing: The reduction in customs duties on 25 minerals, including lithium, and the exemption of basic customs duty on EV batteries will promote EV battery manufacturing in India and may make EVs more affordable.

Other Key Sectors

  • Defense: Defense stocks saw a plunge, with some falling up to 8% after the budget speech, despite an allocation of ₹4,91,732 crore.
  • Railways: Railway stocks declined over 6% due to a lack of significant announcements for the sector.
  • Telecom: Telecom companies like Bharti Airtel, Reliance Jio, and Vodafone Idea are expected to benefit from the push for broadband connectivity in schools.
  • Manufacturing: Companies like Reliance Industries and Siemens India are expected to benefit from the emphasis on boosting domestic manufacturing.
  • Banking: Banks, particularly HDFC Bank and Axis Bank, may benefit from increased credit adoption due to the enhanced Kisan Credit Card (KCC) scheme. However, rising yields may put pressure on the banking sector.
  • Microfinance: Microfinance companies are in focus due to enhanced credit guarantees for MSMEs.
  • Aviation: Aviation stocks like Indigo, GMR Airports and Spice Jet gained due to a modified UDAN scheme.
  • Footwear: Footwear stocks rallied following the announcement of a scheme to support the footwear and leather sector.

In conclusion, the Budget 2025 is anticipated to bring about significant shifts in market dynamics, with consumption-driven sectors emerging as potential winners, while industries dependent on capital expenditure may face short-term challenges.

Disclaimer: This news is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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