Stock Market Expectations from Budget: Union Finance Minister Nirmala Sitharaman will present the general budget on February 1, 2025. This will be the second budget of the Modi government after the 2024 Lok Sabha elections. The Budget will play an important role in shaping investor sentiment amid a slowdown in domestic economic growth and rising global uncertainty.
Market experts say that budget capital expenditure (capex) will see an increase. In this, special emphasis will be given to areas with major infrastructure like roads and highways, railways and defence. If investors are happy with the government’s policies, then the market may see a rise. Whereas if any such change happens, the market does not like it, then a decline can also be seen.
Long term capital gains tax should be cut
Brokerage firm Bajaj Broking in its wish list from Budget 2025 said the Union Budget 2025 should ideally continue the focus on simplifying and rationalizing taxes on capital market products. For example, in Budget 2024, long term capital gains were rationalized at 12.5%. However, now it can be reduced by 50-200 basis points to benefit the investors.
The brokerage said reducing Securities Transaction Tax (STT) and simplifying the provisions for Alternate Investment Funds (AIFs) will boost institutional investment. Besides, liquidity in the market will increase and foreign portfolio participation will be encouraged.
The brokerage said that simplifying the tax rules for financial instruments like bonds, stocks and derivatives as well as FPIs will remove complexities and increase their attractiveness to the market.
Expectations of income tax cut
According to market experts, announcements regarding changes in income tax and reduction or increase in tax can create fluctuations in the stock market. If the government announces a cut in income tax, it may cause a boom in the stock market.
Swapnil Aggarwal, director at VSRK Capital, says that middle class tax payers should be given relief. Additionally, reducing the compliance burden for businesses can provide significant tax relief. The budget should focus on key areas such as relief to tax payers, business compliance, environmental sustainability and strong fund management rules.
At the same time, Gurumeet Singh Chawla, Director at Master Capital Services Limited, said that it is expected that the government may increase the basic exemption limit for income tax. EY India has suggested increasing it from ₹3 lakh to ₹5 lakh. This step can increase spending income and support economic growth.
Gurmeet Singh Chawla said investors are pinning their hopes on a more streamlined capital gains tax structure across different asset classes. The Budget hopes to reduce complexity and improve compliance.
Stock market reaction on budget
Decisions like reduction in income tax can lead to a rise in the market whereas if there is any negative change then the market can also see a decline. At the same time, there may be movement in specific sector areas on the budget day. If the government announces support to a particular sector or industry in the budget, there may be movement in the shares of that sector. If the government announces policies for investment in sectors like energy, manufacturing or technology, then the shares of companies in these sectors may see an increase.