What foreign brokerages Nomura and UBS have to say on Union Budget 2025

The Indian stock market experienced heightened volatility on February 1, 2025, following the announcement of the FY26 Union Budget by Finance Minister Nirmala Sitharaman. While the budget introduced substantial changes in income tax slabs, which aimed to boost middle-class consumption, market sentiment remained mixed due to concerns about the government’s reduced focus on capital expenditure (capex).

Key Budget Highlights and Market Reaction

One of the key highlights of the budget was the increase in the income tax exemption limit to ₹12 lakh, a move designed to stimulate household consumption, savings, and investment. Expectations had been high for an increase to ₹10 lakh, but the announcement exceeded those expectations. However, experts pointed to a negative surprise regarding the capital expenditure (capex) allocation, which fell short of the ₹11 lakh crore target for FY25.

As a result, the Nifty 50 ended the session with a marginal drop of 0.11 per cent at 23,482, while the Sensex closed flat at 77,505. The Nifty Smallcap 100 index rose by 0.12 per cent to 16,560, and the Nifty Midcap 100 index fell by 0.42 per cent, closing at 53,486. Despite these fluctuations, the Nifty Smallcap 100 index managed to end the session in the green, rallying 0.41 per cent to settle at 16,979.

Foreign Brokerages on Budget 2025:

Nomura

Nomura's Sonal Varma, Chief Economist, commented on the budget’s balanced approach, noting the fiscal discipline coupled with measures aimed at supporting growth.

"The budget has tried to balance the twin objectives of fiscal discipline and supporting growth. At the margin, there is a tilt towards supporting consumption through tax cuts for middle-class households, relative to the public capex push seen over the last four years. Public capex is expected to rise by around 10 per cent y-o-y in FY26, which is a modest but realistic outcome. The growth impulse from the budget should be marginally positive for FY26." Varma said, adding that fiscal prudence would help keep India’s fiscal risk premia low, providing room for the RBI to lower policy rates.

UBS

UBS analysts have highlighted that the Union Budget 2025 strikes a balance between stimulating near-term growth and maintaining fiscal discipline, while addressing concerns about softer domestic growth and global uncertainties, such as tariff risks under "Trump 2.0".

UBS also provided its insights, acknowledging the government's effort to support short-term growth while laying the groundwork for medium-term improvements. Unlike more than 400bps fiscal consolidation seen cumulatively in the past 4 years, the government's fiscal consolidation efforts have slowed down, with the fiscal deficit target set at 4.4 per cent of GDP in FY26, compared to 4.8 per cent in FY25, highlighted the global brokerage.

UBS analysts noted that while the urban consumption boost of ₹1 trillion is positive for sectors like consumer durables, two-wheelers, and banking, the capex increase of only 10.1 per cent YoY is disappointing, especially when compared to the 30 per cent YoY growth seen between FY22-24.

In summary, while the Budget 2025 has delivered positive relief for middle-class households through tax cuts, the reduced focus on infrastructure capex has tempered investor enthusiasm. The mixed reactions from the market reflect these concerns, but there is optimism regarding the potential boost to consumption and the long-term growth strategy outlined in the budget. Analysts agree that while the fiscal adjustments and targeted sector incentives will provide support, the balance between fiscal discipline and growth will remain critical for the broader economic outlook in the coming years.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.