Budget 2024: Experts highlight the good, bad, and ugly for the Indian stock market

Budget 2024: What might a good Budget look like from the stock market's perspective? A basic answer to this question could be a Budget focused on fostering economic growth, improving investor sentiment, and enhancing the overall business environment.

On these fundamental parameters, the Union Budget 2024 appears to be a mixed bag.

The market anticipated a fiscally prudent budget, featuring increased capital expenditure and reductions in capital gains and personal taxes. The Budget, however, delivered a mix of positive, negative, and neutral elements to the market.

Market benchmark Sensex closed 73 points, or 0.09 per cent, lower at 80,429.04, while the Nifty 50 settled 30 points, or 0.12 per cent, down at 24,479.05 on Tuesday, July 23.

The good: Fiscal prudence

There were quite a few positives in the Budget 2024- the biggest among them was the fiscal prudence. The government avoided being overtly populist and even trimmed its fiscal deficit target.

Finance Minister (FM) Nirmala Sitharaman, in her budget speech, said the country's fiscal deficit may be at 4.9 per cent of GDP in FY25. This is lower than the 5.1 per cent projected in the Interim Budget in February this year and is closer to the 4.5 per cent target set for FY26.

"While the budgeted spending on infrastructure, rural and agri has remained same as Interim Budget, it maintains a fine balance between improving efficiency in agriculture, supporting the rural economy and keeping the focus intact on infrastructure spending given the limited time left in the current fiscal year," said Rahul Singh, CIO-Equities, Tata Asset Management.

Experts pointed out that the government managed to strike a fair balance between fiscal prudence and growth.

"Union Budget aimed to strike a fine balance between fiscal prudence and growth impetus. The Budget has focused on continuing SIP- sustainable development, inclusive growth and prudence (fiscal consolidation)," said Navneet Munot, MD & CEO, HDFC AMC.

Moreover, focus on employment generations, infra projects and rural sector are also long term positives for the market.

The bad: No rise in capex target

Experts say the government could have done more on the capital expenditure (capex) front. The FM maintained the FY25 capex target of ₹11.11 lakh crore.

"This year, I have provided ₹11,11,111 crore for capital expenditure. This would be 3.4 per cent of our GDP," said the FM in her Budget speech.

While experts do not see it as negative, they observed that an increased capex target would boost market sentiment.

Major infra stocks, such as H.G. Infra Engineering (down 5.09 per cent), Larsen and Toubro (down 3.10 per cent), Siemens (down 3.23 per cent), ABB India (down 2.68 per cent), IRB Infrastructure (down 2.30 per cent), KNR Construction (down 1.65 per cent) and Reliance Infrastructure (down 1.49 per cent) ended with losses on Thursday.

The ugly: Increase in capital gains taxes

Sitharaman proposed to increase the rates of STT (Security Transactions Tax) on the sale of an option in securities from 0.0625 per cent to 0.1 per cent of the option premium and on the sale of futures in securities from 0.0125 per cent to 0.02 per cent of the price at which such futures are traded.

Besides, she announced that LTCG (long-term capital gains) tax on all financial and non-financial assets will attract a tax rate of 12.5 per cent from 10 per cent earlier and that STCG (short-term capital gains) tax on certain financial assets will attract a tax rate of 20 per cent from 15 per cent earlier.

V K Vijayakumar, chief of investment strategy at Geojit Financial Services, said from the market perspective, the budget proposals intending to raise tax revenue from capital gains are slightly negative.

"The increase in STCGs tax from 15 per cent to 20 per cent is sharp. The increase in LTCGs tax from 10 per cent to 12.5 per cent is only marginal, particularly when seen from raising the LTCGs tax exemption limit from ₹1 lakh to ₹1.25 lakh. The taxation of share buyback income at the hands of the recipients also is a negative. Higher taxes on F&O were expected, and this is being done to reduce the excessive speculative trade in the market," said Vijayakumar.

Pranav Haridasan, MD & CEO of Axis Securities, also said that the rise in capital gains taxes is a short-term negative for the market.

"The Union Budget 2024-25 has presented short-term challenges for the markets. The rise in capital gains tax rates and the increased STT are a short-term negative," said Haridasan.

However, Haridasan pointed out that the Budget had several positives.

"The fiscal deficit has been reduced to 4.9 per cent, demonstrating a solid fiscal consolidation path. Additionally, the Budget places a strong emphasis on welfare schemes, aiming to alleviate rural distress and support the rural economy. Despite the initial market reaction, the impact is expected to be temporary, with a return to normalcy anticipated soon," said Haridasan.

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