As India prepares itself for the 2024 Union Budget, it is only natural that investors and analysts are keeping a close eye on the ramifications it might have on the stock market. Budgets are essentially financial plans that governments present or announce before slating of spending priorities for the year.

Investors are highly curious to know the main points of the budget and much before it is actually published, a lot of rumours and planning go around. In this post, we will look at some of the highlights of budget 2024 and their impact on stock market and see how budgets affect trends in markets.

Overview of Budget 2024

As Finance Minister Nirmala Sitharaman gets set to present the first Budget of Modi government part 3 in a few weeks, all eyes are on what she has in store. Due in the monsoon session, this will be her sixth budget and similar to the past, speculation is rife as to how it could move markets. Reports suggest that for 2019, political combined with economic compulsions may make markets veer away from short-termism and discounting populist dole-outs.

Stock Market Trends During Budget Season

Every five year the scope and nature of Budget changes. It also is the time when there is higher activity among investors, which means stock market also sees higher volatility. Notably, while the Budget reaction have been subdued on most occasions, with gains or losses not crossing 2 percent in 8 of the last 10 years.

Here are a few examples from the past to show how the stock market behaves when budget is near:

• In 2013 under UPA government, Finance Minister P. Chidambaram presented budget which had upset the market, and this was the worst Budget Day performance since 2009 with Nifty falling around 2%.

• Finance Minister Arun Jaitley presented his second budget in February 2015. The market had a slightly positive reaction, 0.7% gain on Budget Day, but then there was a selloff and the Nifty fell about 4.6% in the next months’ time.

India’s first full-time woman Finance Minister, Nirmala Sitharaman presented her maiden Union Budget in 2019. The market did not like it so much especially the lack of clarity on big ticket announcements that came before. Nifty fell 8% in the month after budget, worst monthly performance of the index till then.

Budget 2021 was a turnaround for Nirmala Sitharaman after two disappointing budgets. In her third budget, not only did the market react positively, the Nifty delivered its best Budget Day gains since 1999, closing 4.7% higher.


Influences on the Stock Market Before Budget 2024

A nation’s budget choices can have an impact on certain economic variables (including inflation and interest rates) which will influence investor’ sensibilities thereby impact the stock market. These are some factors that affect the stock market:

Government policies: Budget allocates funds to sectors like healthcare, infrastructure, defence and education. If the government increases its spending in some particular sector, it can help the companies operating in those sectors and hence their stock prices go up and vice versa if governments reduce the budget allocated to certain sector it led to decrease in stock prices of those sectors stocks. –

2. Tax policies: Budget announced changes in the tax regulations can have an impact on the corporate profitability as well as investor’s behaviour. The reduction in the corporate taxes generally increase the companies earning that can also increase the prices of the stocks. On the other hand, an increase in taxes can reduce the corporate profits and may also affect Investor’s perception regarding a company value.

3. LTCG/STCG rules: Every budget there are expectations that government may change Long Term Capital Gain (LTCG) tax structure by either increasing the holding period or changing the tax rate which will have direct impact on the investor, such changes drive more participation of investors in stock market and thus it also has direct impact overall stock market performance.

4. Interest rates- budget decisions can affect monetary policy, which in turn affects how central banks set interest rates. Higher government borrowing can push up borrowing costs, for businesses and households, and impact on decision making around investment as well as the value of financial assets such as stocks.

Strategic Investing Around Budget 2024

The stock market has fallen initially after Lok Sabha elections result, but recovered well. Financial Advisers suggest to invest in infrastructure, defence, railways, renewable energy, agriculture, electric vehicles (EC), MSME. It is expected that budget may lead to foreign investors getting attracted to make investments in India and also helps simplifying the tax structures. Expected focus on Green Energy.

Agriculture sectors such as fertilizers, sugar, agrochemicals, defence and bank sectors have been in lime light before budget and also IT space is expected to change. So better be positive and invest accordingly in those sectors / themes.

Prior to budget announcement, traders are normally in speculative mode and indulge in short term trading based on market expectations. Positions may be readjusted on the Budget Day itself, post the announcements/numbers. It will also reflect how quickly will sentiment swing based on the budget effects for sectors and stocks specifically.

Post-Interim Budget 2024 Market Reactions

Here are some immediate reactions following the interim budget announcement:

• Analysts appreciated government’s focus on strengthening public sector undertakings through recent measures.

• The rupee gained 8 Paise to close at 82.96 against the US dollar after the government indicated faster fiscal consolidation and lower borrowing in the 2024-25 interim budget.

Benchmark stock indices ended lower on Budget Day as investors booked profits in the wake of mixed cues.

• Response among the Indian business community in the Gulf was mixed to India’s interim budget for 2024-25 with some lauding its forward-looking stress while others were disappointed over lack of tax sops.

Conclusion

The interim budget was the final one under Modi Government 2.0 before the general elections. with the BJP-led NDA politics game inch force they are potential to bind to the proposals distinct inch the lag budget for their future announcement looking forward to the good budget finance curate Sitharaman faces the dispute of boosting efficient increase spell management rising prices and achieving financial constancy. She also needs to meet the expectations of important allies like Chandrababu Naidu’s Telugu Desam Party and Nitish Kumar’s Janata Dal (United) decisive for securing BJP’s third consecutive government despite not having a Lok Sabha majority in the recent elections.