After ending January on a disappointing note, the Sensex has suddenly soared by 2,100 points in just four days! Investors are excited because they believe the upcoming Union Budget, set to be announced this Saturday, might introduce helpful initiatives, like lowering personal income tax.
Even though Foreign Institutional Investors (FIIs) have been selling off a lot of stocks—around $9 billion, and company earnings for the last three months weren’t so great, the markets are buzzing in anticipation of the Budget. Traders are hopeful that it will contain plans to boost the economy. Prashanth Tapse from Mehta Equities mentions that traders are mainly focused on what the government will announce to lift economic growth.
The European Central Bank’s (ECB) decision to cut interest rates also helped strengthen the equity markets by making borrowing cheaper, which in turn lowered U.S. bond yields.
According to Motilal Oswal, the Budget this year needs to be more than just a routine plan, especially since there’s been a 12% drop in government spending from April to November. If the government announces a capital expenditure (capex) budget over ₹11 lakh crore with solid plans to execute, it could pleasantly surprise investors.
However, there are worries about whether the Finance Minister will prioritize necessary investments or lean toward giving away easy handouts, especially after promising many freebies in state elections.
The past few budgets have seen increased taxes on the stock market—like higher Small Transaction Tax (STT), capital gains taxes, and taxes on dividends. This year, it’s crucial for the Finance Minister to avoid introducing new taxes. Instead, they should focus on providing useful tax rebates that would encourage people to spend more.
Sunil Damania, Chief Investment Officer at Mojo PMS, emphasizes that the Budget must include clear timelines for spending, or else it won’t have much effect.
However, analysts believe that any market impact from the Budget will last only a few days. The longer-term direction of the market will depend on GDP growth and company earnings. So, investors should pay attention to these important economic signals, suggests Dr. V K Vijayakumar from Geojit Financial Services.
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