Budget 2024: A Catalyst for India’s Stock Market and Business Landscape

The Union Budget 2024, presented on 23 July 2024, was a significant event for India’s economy. The government has aimed to drive growth, boost investor sentiment and create a conducive environment for businesses with a focus on key themes such as urban & infrastructure development, digitalization, green initiatives, employment & skilling.

Key Budgetary Measures and Their Impact on Stock Market and Business Landscape

  1. Tax Reforms:
  • Corporate tax: Tax rates of Indian companies and partnerships (including Limited Liability Partnerships) are not proposed to be altered. The tax rate on foreign companies has reduced from 40% to 35%. It will most likely have a positive impact on the Indian stock market and the business sector. It will also encourage international companies to invest more in India, resulting in increased Foreign Direct Investment (FDI), job creation, and economic growth. This might boost investor confidence and push stock prices upward.
  • Personal Income Tax Rates: The standard deduction for salaried personnel is scheduled to increase from 50K to 75K-. The deduction on family pension for pensioners is suggested to increase from 15K to 25K. This will benefit approximately four crore salaried people and pensioners. The new tax structure allows salaried employees to save up to 17.5K in income tax. The increased standard deduction and family pension deduction for salaried employees and pensioners are expected to boost consumer expenditure and disposable income. This might lead to higher revenue and profit for businesses, which could boost the stock market.

  • Capital Gains Tax: The tax rate for short- term capital gains (STCG) on certain assets has been increased to 20% while other assets will retain their existing rates (15%). For long term capital gains (LTCG), the tax rate has been raised from 10% to 12.5%. This could have a negative effect on the stock market and corporate environment. As a result, investors would be less likely to invest in those assets because demand has decreased and prices may fall. This might reduce the attractiveness of the Indian stock market to foreign investors while also slowing overall economic growth.
  • Incentives for Startups: The budget provided tax incentives and other support measures to encourage the growth of startups and innovation.

2. Infrastructure Development: The Union Budget 2024 is expected to provide significant fiscal support for infrastructure, with a proposed allocation of 3.4% of GDP. The Budget promotes PPPs by leveraging private sector investment and expertise in infrastructure projects. Increased infrastructure spending on transportation, roads, and renewable energy projects would generate jobs, boost economic growth, and hence drive demand for related goods and services. Further investment, knowledge, and efficiency by the private sector through PPPs can lead to even more favorable economic and stock market development.

3. Digital Initiatives:

  • Digital India: The government restated its focus on Digital India, which includes growing internet access, e-governance, and digital payments. Increased internet coverage and e-governance will accelerate digital adoption and economic activity, helping tech companies.
  • Skill Development: The budget emphasized theneed of skill development in meeting the demands of the digital economy. Furthermore, focusing on skill development will result in a skilled workforce, which might attract more foreign investment and boost economic growth. These things could boost investor confidence and stock values.

4. Agricultural Reforms:

  • Agricultural Infrastructure: The government has allocated 1.52 lakh crore to modernize agricultural infrastructure, improve market connections, and increase farmer income.
  • Agri-export promotion provides an incentive to increase agricultural exports and reduce reliance on imports.
  • These efforts may boost corporations that lead in agricultural, food processing, and other linked industries, causing stocks to rise and potentially accelerating economic development.

Market Performance:

  • Sensex and Nifty: The benchmark indices Sensex and Nifty rose by 10% within days of the budget announcement. Market capitalization of BSE Sensex and Nifty 50 was at 162 lakh crore (US$1.9 trillion) and US $241.78K, respectively.
  • Sector-wise Performance: Certain sectors such as ship building, plastics products and power have outperformed the market while healthcare, oil & gas, telecom and retailing have underperformed.

Investor Sentiment:

  • Foreign Institutional Investors (FIIs) have boosted their overall investments in Indian equities in recent years, showing an optimistic outlook on the country’s economic prospects.

  • Domestic Institutional Investors (DIIs) have expanded their exposure to Indian stocks, indicating a bullish outlook for the domestic market.

The Union Budget for 2024 has the potential to be a significant stimulus for India’s stock market and business landscape. The government’s tax changes, infrastructure development, and digitization measures have fueled economic growth, increased investor sentiment, and created a favorable business environment. These fruits may take some time, but based on first market reactions, investors appear to be confident about the country’s future prospects.