According to Emkay Global's most recent strategy note, the stock market will pivot to consumption from the industrial and manufacturing sectors as a result of tax cuts in the FY26 Union Budget, which increased net incomes by 2-7 percent for India's upper middle class. The move supported the brokerage's prediction of a consumption recovery in the second half of FY25. Consumer discretionary is a popular way to play the theme, according to the domestic brokerage firm.
Staples and financials may also benefit, but both sectors suffer from a fundamental growth-valuation disconnect, according to Emkay Global, which adjusted its model portfolio to increase weights in consumer discretionary and financials while decreasing weights in the energy sector.
"The Budget does not alter our overall assessment of the market." We maintain our December 2025 Nifty target of 25,000, based on a conservative 21.1 times trailing PE. We maintain our consumption bias and increase our emphasis on Consumer Discretionary (CD), which is our preferred way to play the theme. Incremental growth is strongest in these sectors, and valuations remain reasonable," it said.
The brokerage has added Maruti Suzuki India Ltd and One 97 Communications Ltd (Paytm), removed ONGC Ltd, and reduced BPCL Ltd from its model portfolio.
Largecap stocks like Lupin Ltd, Zomato Ltd, and Tata Motors Ltd are among our top picks for 2025. In the midcap space, it favors IndusInd Bank Ltd, Escorts Ltd, and Paytm. Emkay's small-cap picks include StoveKraft, Metropolis Healthcare, and Quess Corp.
The government proposes a reduction in income tax incidence on incomes below Rs 25 lakh, which raises effective incomes by 2-7 percent, with the total stimulus estimated at Rs 1 lakh crore or 0.3% of GDP. This alone may not be enough to reverse the consumption slowdown, but there are other benefits to consider, according to Emkay Global.
"Jobs are improving, and we expect retail loan growth to rebound in FY26, particularly in the unsecured segment. Other benefits of the tax cut include a small improvement in the overall credit environment, including retail deposits, credit capacity, and asset quality. A key risk is the optimistic buoyancy in the implied 15% YoY (BE) increase in personal income taxes," it said.
