• Capex budget has risen 15% CAGR in the past 10 years, allocation until 2030 likely to exceed

$1.2 trillion

• Large capex investments likely to be beneficial for Banks and specialized infra NBFCs
• Most of the consumption focused companies are overvalued
• Consumer finance companies available at a more reasonable valuation
• EVs, Mobility, Tourism, and religious tourism provide interesting opportunities
• DeepSeek has expanded the market for IT, but near-term growth rates and valuations a concern

Mumbai/Bengaluru, February 4, 2025: smallcase held a post-budget media webinar where the panel of smallcase managers were of the view that the Budget will boost consumption sector and long-term policies favorable for urban housing, insurance, and defense-related industries.

The post-budget media webinar was hosted by Ambareesh Baliga, smallcase Manager with participation from panelists Arvind Kothari, smallcase Manager & Founder of Niveshaay, Dr. Vikas Gupta, smallcase Manager & Founder of OmniScience Capital and Sonam Srivastava, smallcase Manager, and Founder of Wright Research.

Managers highlighted the capex budget has risen 15% CAGR in the past 10 years, and the allocation until 2030 is likely to exceed $1.2 trillion, believe smallcase managers. According to them, large capex investments are likely to be beneficial for Banks and specialized infra NBFCs. While most of the consumption focused companies are overvalued but consumer finance companies are available at a more reasonable valuation. On DeepSeek, smallcase managers say it has expanded the market for IT, but near- term growth rates and valuations are a concern.

Capex budget

While the showstopper in this budget was the zero income tax for those incurring INR 12 lakhs of salary, there was a lot of capex and infrastructure allocation which was not in the limelight. From 2014-15 where capex was 20% of the total budget, it has increased to 31% this year. Capex budget has been growing at nearly 15% CAGR over the last 10 years compared to the revenue budget which has grown at around 10% CAGR.

Sectors in focus

Such large capex investments are likely to be beneficial to Banks and specialized infrastructure NBFCs. Further, the focus on power sector “nudge” reforms, which encourage state discoms to focus on timely payments to generators, are likely to benefit the whole power ecosystem. Housing and Urbanization focus would benefit housing finance companies. Besides these, Defence, Railways, and Construction and Engineering and EPC companies would benefit to a large extent.

Consumption sector is a big winner

While consumption is likely to benefit, most of the consumption companies are extremely overvalued. smallcase managers believe that consumer finance companies could be a way to play this at a more reasonable valuation. Also, EVs and other means of mobility could provide interesting opportunities. Another sector which could be interesting due to the tax benefits and the budget focus on the sector is Tourism, especially, religious tourism.

DeepSeek and IT sector

IT remains an interesting play with DeepSeek catalyzing an extraordinarily large TAM (total addressable market) for Indian IT services companies. With the cost of training new AI models being brought down to 1/30^th to 1/50^th of the earlier paradigm, this makes it possible for small and mid-sized companies and startups to develop new models and launch numerous products based on AI in the next 2-10 years. This enlarges the market for Indian IT services many fold. However, with some uncertainty on the near-term growth rates and valuations slightly high, IT remains potentially alpha-generating.

Moderating the webinar, Mr. Ambareesh Baliga, veteran market expert & smallcase Manager, highlighted, “Toy industry is a $400 billion global market, with significant manufacturing happening in China. The budget has allocated funds for the toy manufacturing industry, which could lead to significant growth in the next 10-15 years. At a macro level, we need the economy to clock over 7.5-8% for long-term growth of the market and currency.”

Dr. Vikas Gupta, smallcase Manager & Founder of OmniScience Capital said, “The US Tariffs on China is a big opportunity for India. At a macro level, Trump favors a weak dollar to increase competitiveness of American exports. Add to that it is challenging for the RBI to cut rates given the fall in INR, the central bank may look at other ways to boost market liquidity given INR fall, largely the street is expecting a 25 bps rate cut by the RBI this week.”

Sonam Srivastava, smallcase Manager, and Founder of Wright Research said, “Retail consumption remains a theme for investment. Trent, Zomato and Dixon Tech are available at attractive valuations currently. We also have a bias towards defensives, capital market focused companies, pharma and hospitals. Electronic manufacturing, Banks and IT sectors also look interesting at the current juncture.”

Arvind Kothari, smallcase Manager and Founder of Niveshaay highlighted power, transformers, and clean energy sectors are attractive investment opportunities, especially with the government’s continued focus on energy transition, infrastructure development, and sustainability. The Budget’s increased allocation towards renewable energy, grid modernization, and EV infrastructure is set to drive robust growth in these areas.

He also pointed out PLI schemes have significantly accelerated the growth of textile companies by enhancing manufacturing capabilities and promoting exports. The Budget’s focus on boosting domestic production, coupled with favorable policies, is expected to further strengthen this sector.

Furthermore, he noted that the Budget’s emphasis on increasing capital expenditure and infrastructure development will have a multiplier effect on the economy, stimulating consumption and private investment. The government’s push towards creating jobs, improving rural incomes, and enhancing

disposable income is likely to drive robust domestic demand, creating a favorable environment for sustained economic growth.

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