Business Standard

India Inc results may mirror govt expenditur­e in upcoming qtrs

Break-up of overall expenditur­e shows most of the gains will be in constructi­on and infra

- KRISHNA KANT Mumbai, 1 February

The Interim Budget is expected to impact corporate performanc­e in the forthcomin­g quarters. The sectoral break-up of government expenditur­e, however, suggests most of the gain will accrue to companies in constructi­on and infrastruc­ture with small benefit for consumer goods firms.

Government expenditur­e is projected to grow 6.1 per cent year-on-year in FY25 over the FY24 Revised Estimate. However, most of the upside in government expenditur­e next financial year will be in capital expenditur­e such as public investment in transport and other physical infrastruc­ture.

In contrast, the Budget projects a contractio­n in revenue expenditur­e in FY25 excluding interest payments on public debt.

According to market analysts, the Budget proposals will translate into a relatively good showing by capex- and investment-related companies in FY25 while consumer companies could be laggards.

“It will be a continuati­on of the current trend wherein consumer goods makers such as Hindustan Unilever, ITC, and Asian Paints are struggling with little or no volume growth while capex-related companies such as Larsen & Toubro would outperform with faster growth in revenues and profits,” said Dhananjay Sinha, co-head research and equity strategy at Systematix Institutio­nal Equity.

Others say the Budget may not have a material impact on corporate earnings.

“From the market perspectiv­e, bond markets may cheer steep fiscal consolidat­ion, although from an equity market standpoint, we don’t think the Budget will materially alter the earnings trajectory in the coming year,” said G Chokklinga­m, founder and chief executive officer, Equinomics Research.

In the past 12 months, fast-moving consumer goods majors such as Hindustan Unilever and ITC have struggled with low single-digit growth in net sales and net profit and they have been laggards on the bourses.

In comparison, Larsen & Toubro, Maruti Suzuki, and Bajaj Auto have seen strong double-digit growth in net sales and net profit. fuelling a rally in their share prices. (See the adjoining chart.)

The central government’s revenue expenditur­e ex-interest payments is estimated to decline by 3.9 per cent Y-O-Y in FY25 to ~20.78 trillion from the FY24 Revised Estimate of ~21.63 trillion.

Total revenue expenditur­e ex-interest payments in FY25 would be the lowest since FY20. Revenue expenditur­e includes salaries and pensions, general establishm­ent expenses, subsidies and grants, and transfer.

For comparison, government expenditur­e is expected to grow 7.1 per cent Y-O-Y in FY24 while revenue expenditur­e, excluding interest payments, is expected to decline by 2.5 per cent Y-O-Y, according to the Revised Estimates.

A cut in revenue expenditur­e would translate into lower income in the hands of the people and that could negatively impact overall consumer demand.

The impact would be higher for families in lower-income brackets, whose income and consumptio­n are more dependent on subsidies and other public expenditur­e.

Higher allocation for capital expenditur­e is, however, expected to expand jobs and employment in the constructi­on and allied sectors, which would partly compensate for a cut in revenue expenditur­e.

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