5 Stocks to Watch for Union Budget 2024: Rural Economy in Focus

The upcoming Union Budget on July 23rd, 2024, has cast a spotlight on rural India. With whispers of increased allocations for rural development schemes, several sectors stand to gain momentum, potentially leading to a rural boom. 

The new government’s initial steps of incentivizing rural housing construction, allocating Rs. 20,000 crore to farmers through the PM Kisan scheme, and raising the minimum support price (MSP) for various crops demonstrate a focus on the rural economy.

Let’s explore how the budget might positively impact cement, auto, rural housing, and microfinance sectors.

Stocks to watch for after the Union Budget announcement

Stock	Close	M-Cap (In cr as of 09-07-24)	1M (%)	3M(%)	1Y (%)	PE Ratio
Tata Motors	993.65	334591	3.81	-0.12	62.96	38.66
Bajaj Auto	9635.8	265483	-2.21	5.93	96.75	36.05
Ambuja Cements	686	166334	8.76	8.44	85.84	55.15
TVS Motor Company	2430.15	115272	0.89	15.52	304.34	36.05
Suzlon Energy	55.49	74,131	9.02	33.01	540.35	116.09
Ashok Leyland	229.56	67255	-1.01	30.11	83.43	38.66
LIC Housing Finance	795.70	42915	17.8	19.77	71.17	14.46
Mahindra & Mahindra Financial Services	300.50	37492	7.43	1.30	87.66	30.08
CreditAccess Grameen	1329.85	20639	-13.66	-10.82	77.37	11.31
Olectra Greentech	1823.35	15672	9.32	2.21	683.38	38.66
Aavas Financiers	1779.05	14280	7.73	13.91	15.38	14.46
India Cements	284.6	8692	30.89	24.14	45.34	55.15
Orient Cement	296.8	6200	35.29	39.02	110.94	55.15
Ashiana Housing	409.75	4082	7.06	32.20	186.89	112.92
SML Isuzu	2085.15	2993	-2.46	-4.52	312.96	38.66

Stock Market Sectors to Watch For in Rural Boom

Financial experts like Goldman Sachs are predicting the upcoming budget, the first under the re-elected NDA government, will prioritize the rural economy and housing. This focus on village-level development may create high-quality service jobs and stimulate labor-intensive manufacturing.

Given this focus, several sectors stand to gain significantly:

Cement and Construction

Increased budgetary allocations for rural infrastructure development, including roads, bridges, and irrigation projects, will directly translate to a surge in demand for cement. This presents an excellent opportunity for cement companies to expand their production capacities and cater to areas’ growing needs.

The sector has shown varied performance, with Ambuja Cement delivering a 60% return over the past year, while Shree Cement returned 12%. Rating agency ICRA predicts a 7%-8% increase in cement volumes for FY25, driven by infrastructure and housing demands.

Additionally, the government’s focus on infrastructure projects and the Pradhan Mantri Awas Yojana (PMAY) is expected to boost cement volume in the latter half of FY25. Top cement companies like UltraTech Cement, Adani Group, Shree Cement, Dalmia Cement, and Nuvoco Vistas Corporation will likely see consolidation and increased market share.

Auto

The government’s focus on rural development will likely bolster disposable incomes in villages. This, in turn, could lead to a significant rise in demand for two-wheelers and small cars, which are crucial modes of transportation for the village population. Auto manufacturers can expect a significant boost in sales, particularly for vehicles catering to such markets.

Despite a dip in sales in May 2024, June showed improvement, with domestic volumes growing in double digits. Hero MotoCorp and Honda Motorcycle and Scooter India outperformed in FY24, while Bajaj Auto and Eicher Motors faced challenges. 

A budget focused on rural spending could enhance auto sales, especially if policy measures increase buyer spending power or provide GST concessions. Vehicle finance is another critical factor; a reduction in financing costs could boost sales for automakers like Ashok Leyland and Tata Motors.

Rural Housing

Budget announcements for affordable housing in rural areas will greatly boost the construction sector. Increased government subsidies and easier access to loans for rural housing projects will drive demand for building materials and construction services. This means growth for companies in cement, steel, and related industries.

The rural development and finance ministries are considering increasing assistance under PMAY (Rural) by 50%, from Rs. 1.2 lakh per house. Last month, the government announced 30 million more rural and urban houses under PMAY, expected to raise the fund allocation from Rs. 80,671 crore for FY25, as proposed in the interim Budget.

Microfinance

Another area to watch is the microfinance sector, which grew 23.6% year-on-year in Q4 FY24. The industry’s total gross loan portfolio reached Rs. 4.33 lakh crore in March 2024.

Financial inclusion will be a key focus in the upcoming budget. More funding for microfinance schemes will help rural entrepreneurs and self-employed individuals get easy credit. It will boost micro, small, and medium enterprises (MSMEs) in rural areas, driving innovation and job creation. Microfinance institutions will grow significantly as they distribute these funds and promote financial literacy.

This sector mainly serves rural areas and is crucial for the Pradhan Mantri Mudra Yojana (PMMY). Companies like CreditAccess Grameen and Fusion Micro Finance are expected to perform well, showing strong growth, stable margins, and solid returns.

Investing in the Rural Boom

The “rural boom” spurred by Budget 2024 presents exciting opportunities for investors. However, careful analysis is essential before making any investment decisions. Investors should consider factors such as:

• Specific Budgetary Allocations: Scrutinize the budget details to understand the specific allocations for each sector. This will help identify which industries will reap the most significant benefits.
• Company Fundamentals: Beyond the budget’s impact, delve into the company’s financial health, management capabilities, and long-term growth prospects.
• Market Conditions: Stay informed about broader market trends and economic factors that can influence stock prices.

A Long-Term Vision

Financial experts like Goldman Sachs expect the budget to be more about outlining a long-term economic strategy than simply announcing short-term stimulus measures. Investors should pay close attention to the government’s broader economic vision and how it will benefit sectors crucial to rural development.

The interim budget for the 2024-25 fiscal year (FY25) already indicated a 17% increase in capital expenditure, exceeding Rs. 11.11 crore. Thanks to healthy growth in tax collections, this signifies the government’s commitment to rural spending while maintaining its deficit reduction goals.

Looking Beyond the Budget Day Hype

While past budgets haven’t caused major market shifts, some sectors might experience short-term gains in the run-up to and after the announcement. However, investors should focus on the long-term implications of the government’s rural-focused policies. 

The Budget 2024 holds the potential to unlock a new era of prosperity for rural India, and these key sectors are poised to play a vital role in this transformation.

*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

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