Budget 2024: What stock market expects from Modi govt

The upcoming Budget is going to be crucial given that it would be the first full year budget of NDA 3.0, which would lay the foundation for India’s economic and social growth for next decade. The market experts expect Budget 2024 to strike a balance between fiscal deficit, capital expenditure (capex) for economic growth and social spending. The Finance Minister Nirmala Sitharaman will present the first Budget of Prime Minister Narendra Modi-led NDA 3.0 on Tuesday, July 23.

“The continuation of existing capex agenda (infrastructure, railways, defence, renewable/clean energy), higher budgetary allocation to revive rural economy, job creation and roadmap for 'Viksit Bharat' by 2047 would be the key theme for the Union Budget 2024-25,” domestic brokerage JM Financial says in a note.

Sunil Nyati, Managing Director, Swastika Investmart, also expects the budget to focus on economic reforms, including higher capital expenditure and infrastructure spending, while maintaining fiscal discipline. This is facilitated by the government's increased fiscal space, thanks to the RBI's substantial dividend and strong GST collection numbers.

“The focus will remain on the green energy sector, defense, railways, housing, and manufacturing sectors. Additionally, measures targeting rural areas, such as rural infrastructure development and agricultural support, will be emphasized,” says Nyati.

Axis Securities in its report says that the budget will strengthen the narrative of "Viksit Bharat" by 2047, following a transformation similar to the one witnessed in the last decade. “Market participants continue to view it as a critical catalyst stimulating the Indian economy’s growth and thereby the Indian market,” the report notes.

The brokerage in its report says that the impact of the union budget on the equity market has reduced notably over the past few years with the government undertaking most of the reforms outside the purview of the budget.

From the perspective of the Indian stock market, brokerages believe that traders and investors will be keenly watching developments towards the capital gains tax. “Any deviation from market expectations could attract some negative reaction in the short term. However, the chances of this occurring appear slim,” says Axis Securities.

Echoing the same, Nyati of Swastika Investmart says that investment sentiment is currently very strong, and it is crucial for the government to avoid decisions, such as hiking long-term capital gains (LTCG) or securities Transaction Tax (STT), that could disturb the market mood.

The STT is a tax imposed on the buying and selling of equity shares, equity-oriented mutual funds, and derivatives (futures and options) traded on stock exchanges in India. Currently, 0.1% of STT is levied on both the buy and sell side. For sale and buy of an option and future in securities, 0.125% of the intrinsic value is applied.

On the other hand, LTCG is a tax applied on profits on the sale of shares or equity-oriented mutual funds held for more than a year. As of now, LTCG is taxed at a 10% rate (plus surcharge and cess) if they reach ₹1 lakh in a fiscal year.

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