Market expectations for Budget not very high, says MOSL; lists top stocks to buy before Budget 2025 | Stock Market News

Stocks to buy before Budget 2025: Market expectations are not very high for the upcoming FY26 Union Budget, according to domestic brokerage house Motilal Oswal Financial Services (MOSL). However, the brokerage believes that the budget holds the potential to influence market sentiment amid the currently subdued equity environment.

Although the budget’s overall impact has diminished due to the ruling NDA government’s proactive extra-budgetary policy measures, MOSL believes that this budget could still be more than just a routine fiscal exercise. With concerns over declining government capital expenditure, weakening consumption trends, and broader macroeconomic challenges, investor expectations remain cautious.

As it will be the first full-year budget of the NDA’s new term, the FY26 budget carries more significance than an ordinary annual exercise. MOSL expects the upcoming budget to set a strategic blueprint for the government’s economic direction over the next few years.

Market Expectations Remain Muted

MOSL noted that investor sentiment regarding government capital expenditure has remained pessimistic, particularly after witnessing a 12 per cent year-on-year decline in capital spending between April 2024 and November 2024. The lack of visible on-ground improvements in recent months has reinforced this cautious outlook. 

However, MOSL suggested that any capital expenditure allocation exceeding ₹11 trillion, accompanied by strong policy commentary, could serve as a positive market catalyst. Additionally, there are concerns that the Finance Minister might lean toward populist measures, particularly after a series of welfare-focused announcements across multiple state elections.

Historical Budget Trends and Market Reactions

MOSL highlighted that while immediate market reactions to budget announcements are common, the true value of structural reforms introduced through budgets typically unfolds over time. 

It further highlighted that past Union Budgets, particularly those of FY15 and FY19, have significantly influenced India’s economic landscape. Early fiscal policies emphasized consolidation, the introduction of the Goods and Services Tax (GST), and infrastructure development, laying the foundation for sustained growth. 

Subsequent budgets shifted focus to manufacturing, Aatma-Nirbhar Bharat initiatives, corporate tax reductions, and green energy investments, leading to strong market capitalisation and profit after tax (PAT) growth in domestic cyclicals, capital goods, and private banking sectors. Public sector banks (PSBs) particularly benefited from strategic recapitalization efforts.

Some Key Expectations

Tax: Unlike previous years, MOSL believes the budget may not impose additional taxes on long-term and short-term capital gains from the equity markets. 

Fiscal Deficit: The FY25 fiscal deficit is expected to be lower at 4.8 per cent against the budgeted 4.9 per cent, providing the Finance Minister with some flexibility in structuring the FY26 budget.

Infrastructure Push: Infrastructure development has been a cornerstone of the NDA government’s policy agenda. The FY15 budget prioritized road and railway investments, leading to an approximate six-fold and eight-fold increase in capital expenditure for roads and railways, respectively, over the past decade. 

Domestic Cyclical Sectors: MOSL pointed out that domestic cyclical sectors have thrived on sustained policy momentum. Reforms like the Production-Linked Incentive (PLI) scheme, affordable housing initiatives, and capex-focused investments have fueled a 30 per cent PAT CAGR in these sectors between FY19 and FY24, while their market capitalization expanded at a 20 per cent CAGR.

PSU Banks: Public sector banks have undergone a significant transformation, aided by the government’s recapitalization initiatives. The 2014 and 2015 budgets introduced banking sector reforms, with cumulative capital infusion reaching ₹3.1 trillion. Between FY16 and FY20, PSU banks collectively reported losses of ₹1.5 trillion. However, between FY21 and FY24, their combined profits rebounded to ₹3.8 trillion. Gross non-performing assets (GNPAs) for public sector banks declined from 14.6 per cent in FY18 to 3.1 per cent as of September 2024. Consequently, the market capitalization of PSU banks recorded a 23 per cent CAGR from July 2019 to January 2025.

Valuation Trends and Market Multiples

MOSL observed that the price-to-earnings (P/E) ratio for listed companies has re-rated from 20.6x in July 2014 to 24.1x currently. Private sector companies witnessed an increase in P/E from 22.8x in July 2014 to 31.1x in January 2025. While multinational corporations (MNCs) continue to command premium valuations, their multiples moderated slightly from 48.3x to 44.1x during the same period. Meanwhile, PSU stocks experienced de-rating, with their P/E ratios declining from 12.8x to 9.6x, as earnings growth outpaced market capitalization expansion.

Top Stock Ideas from MOSL

For large-cap investments, MOSL highlighted ICICI Bank, SBI, L&T, HCL Tech, M&M, Trent, Bharti Airtel, Titan Company, Sun Pharma, and Dixon Technologies as its top picks. 

In the mid-cap and small-cap segments, it recommended Indian Hotels, Cummins India, BSE, Godrej Properties, Coforge, Metro Brands, IPCA Labs, Angel One, Vinati Organics, and JSW Infrastructure.

Overall, according to MOSL, the FY26 Union Budget presents a crucial opportunity to reinforce investor confidence and address prevailing economic concerns. While market expectations remain subdued, strategic policy announcements, particularly around capital expenditure, household income growth, and fiscal management, could provide a much-needed boost. MOSL remains optimistic about India’s structural growth story, contingent on sustained policy momentum and execution efficiency.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.