ETMarkets Smart Talk: Will tax slab rationalization drive market participation or consumption? Pranav Haridasan weighs in

In an interview with ETMarkets, Haridasan said: “With higher disposable income, spending on discretionary goods, travel, tourism, and everyday consumption is likely to increase, providing a boost to sectors that thrive on domestic demand,” Edited excerpts:

What are your views on Budget 2025?
The Union Budget 2025 balances fiscal discipline with a strong push for demand-driven growth. It addresses economic moderation seen in the first half of the financial year, marked by reduced government spending, credit tightening in unsecured lending, urban consumption slowdown, extended monsoons, and inflation.

A key highlight is the landmark tax rebate for individuals earning up to ₹12 lakh, which is expected to drive consumption and improve household cash flows.

Despite the revenue impact of tax concessions, fiscal prudence remains intact, with the deficit for the current financial year revised to 4.8% and set at 4.4% for the next year.

Capital expenditure continues to be a priority, with allocations rising by 10% Y-O-Y to ₹11.2 lakh crore. While infrastructure has been a key driver of economic growth over the past decade, this budget shifts focus to mass consumption.By strengthening rural and middle-class spending, it aims to trigger a private capital expenditure revival while ensuring sustained public investment in core infrastructure such as roads, power, and railways.The overall approach signals a transition towards consumption-led growth while maintaining long-term investment momentum.

Which sectors are the major beneficiaries of Budget 2025?
The focus on boosting disposable income and consumption makes sectors such as retail, fast-moving consumer goods, quick-service restaurants, automobiles, and travel and tourism likely beneficiaries. The financial sector is also well-positioned for growth, given its role as a key economic enabler.

Sustained public capital expenditure will continue to support infrastructure, construction, and real estate. Consumption-driven stocks, which have underperformed in recent quarters, may see a revival as demand picks up.

How will tax slab rationalization impact investor participation in financial markets?
The rationalization of tax slabs is expected to have a more immediate impact on consumption rather than direct equity market participation.

With higher disposable income, spending on discretionary goods, travel, tourism, and everyday consumption is likely to increase, providing a boost to sectors that thrive on domestic demand.

Financials may benefit indirectly, as easing stress around unsecured lending and improved credit flows could enhance overall financial sector stability.

While some of the additional income may find its way into savings and investments, the primary effect of this tax relief will be felt in higher household spending and demand-driven economic momentum, rather than a significant surge in equity market participation.

How will increased capital expenditure benefit construction, real estate, and industrial manufacturing?
The government has increased allocation to capital expenditure by 10% y-o-y. While this may seem muted, it is complemented by a 40-45% increase in state capital grants, making overall infrastructure spending robust.

Since state governments play a critical role in execution, this shift ensures more efficient and region-focused project implementation.

This will help construction, real estate, and industrial manufacturing, creating jobs, boosting demand for building materials, and strengthening long-term economic growth while maintaining fiscal discipline.

What impact will the clean energy and nuclear energy push have on the sector?
The Budget reinforces India’s commitment to clean energy through distribution reforms, incentives for clean-tech manufacturing, and an ambitious target of 100 GW of nuclear energy by 2047. These measures will enhance energy security, reduce reliance on fossil fuels, and position India as a leader in renewable innovation.

What does the 4.4% fiscal deficit target indicate about India’s macroeconomic stability?
With nominal GDP for the next financial year projected to grow at 10.1%, the government’s ability to maintain fiscal discipline is notable. The deficit target remains below 4.5% despite tax concessions, reflecting prudent fiscal management.

This approach ensures macroeconomic stability while maintaining investor confidence and keeping India on a sustainable growth path.

What is the ideal sector allocation for a ₹10 lakh investment for a 30 to 40-year-old?
A balanced investment strategy should include 40-45% in interest rate-sensitive sectors such as banking, non-banking financial companies, discretionary spending, automobiles, and telecommunications.

Defensive sectors, including pharmaceuticals, information technology, insurance, consumer staples, and healthcare, should also account for 40-45%.

Cyclical sectors such as metals, mining, industrials, and building materials should comprise 10-15% of the allocation.

With the current market landscape, a focus on quality stocks and growth at a reasonable price is key to generating strong risk-adjusted returns over the next 12-18 months.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)