The Union Budget, a key event in India's financial calendar, often prompts notable shifts in stock valuations. Investors, analysts and businesses watch the announcements closely to assess how government policies might affect various sectors.
This year, Finance Minister Nirmala Sitharaman will present her ninth consecutive Budget on February 1.
Growth-Oriented Measures Drive Confidence
A major expectation from any Budget is the potential for economic growth. Stock markets usually respond favourably when measures are announced to stimulate the economy.
These can include tax incentives, infrastructure projects, or policies designed to support business expansion. When the government introduces such reforms, it boosts investor confidence, leading to a rise in stock prices.
More Disposable Income, Higher Spending
Market reactions also hinge on measures that increase household spending power. Tax cuts, direct cash transfers and steps to curb inflation can put more money in people's hands. When consumers have greater purchasing power, spending rises, benefiting sectors such as retail, automobiles and fast-moving consumer goods. Increased demand often translates into higher stock valuations for companies operating in these areas.
Taxation Tweaks
Changes in taxation are another factor that shapes market movements. Tax reductions for individuals and businesses can increase disposable income and corporate profits, encouraging further investment.
Conversely, higher taxes may reduce spending and dampen market sentiment. The Budget also affects capital gains and dividend taxes, which directly influence investment behaviour. Lower taxes on these profits can encourage people to invest more in the stock market, leading to higher stock prices.
Fiscal Deficit
The fiscal deficit, the gap between government expenditure and revenue, is closely monitored by stock markets. A high deficit may necessitate increased borrowing, raising inflation and interest rates, which can negatively impact businesses. A lower deficit is viewed as a sign of fiscal prudence, generally boosting investor confidence.
