Understanding the impact of Budget 2025 on the stock market

Understand the pre-budget 2025 trends and the possible impact of Budget 2025 expectations to make the best of this Budget season.

The Budget is integral to the functioning of the Indian economy. It sets up the framework within which the economy and its markets behave. Traders and Investors mould their financial decisions depending on Budget provisions. Therefore, the Union Budget and Pre-Budget expectations have a significant impact on stock market performance.

Markets to be open during Budget 2025

On February 1, Finance Minister Nirmala Sitharaman will deliver the Union Budget 2025, her eighth budget delivery. Since Finance Minister Nirmala Sitharaman is expected to unveil the Union Budget on Saturday, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have both stated that their exchanges would be open for full trading hours.

Markets have historically stayed open on budget day. Transparency and effective determination of prices is ensured by keeping the markets active during the budgetary announcement so that players may respond instantly.

Usual Stock Markets Before Budget

Market stakeholders cannot understand the impact of Budget 2025 on the stock market without prior familiarity with the usual trends observed before the Budget.

  • Due to the uncertainty surrounding budget releases, investors typically decide to sell before the budget day. 63% of the time, investors cut back on their share market investments before the budget day.
  • Following budget releases, investors resume purchasing as certainty returns. 62%of the time, investors resume purchasing shares after the budget day, following the announcement of the budget.

Stock market before Union Budget 2025

The Nifty is expected to close January on a declining note before the Union Budget 2025, marking the fourth straight month of decline, after losing almost 3% of its value so far this month.

A realistic downturn was long needed, and the markets were inflated. For instance, the price-to-earnings ratios (P/Es) of mid- and small-cap firms were greater than those of leading Nifty 50 stocks. The adjustment is so severe that it appears dramatic.

Options sellers have been increasing their holdings at the 22,800 strike Nifty put option, which matures on Thursday, January 30, as some analysts and experts suggest that markets may be approaching a bottom before Budget 2025.

Budget 2025 expectations that might affect market performance

Experts and analysts are discussing various stock market reactions resulting from certain key pre-budget expectations.

Fiscal deficit

Recent data indicates robust tax buoyancy. In addition to GST revenues being stable and corporate advance tax payments increasing by 16% , direct tax collections are predicted to surpass projections by ₹73,000 to 83,000 crore. This can lead to a smaller fiscal deficit than anticipated.

The budget deficit approximations were at 5.6% in FY 2023–2024 and 4.94% in FY 2024–2025. By 2026–2027, the government hopes to significantly reduce the fiscal deficit to less than 4.5%. The government might pursue budget consolidation to achieve this.

It may allow the government to lower personal taxes to increase spending. These kinds of proposals could encourage market optimism.

Capital gains tax

In the run-up to Budget ’25, capital gains tax rates are an important topic. Market responses to recent developments have been uneven, and views on possible cuts are split. If tax rates keep rising, foreign investors’ fascination with Indian stocks may decline.

Increasing purchasing power through jobs and income tax cuts

Market attitude may be improved, according to experts, if the Budget 2025 outlines policies to increase demand, speed up production, and generate more employment. Similarly, income tax cuts will increase disposable income and help improve the stock performance in industries like FMCG.

Other expectations

The economy and markets will benefit greatly in the long run from additional funding for infrastructure projects, higher divestment objectives, and initiatives to support the expansion of startups.

Conclusion

The primary objective for keeping the Markets open during Budget 2025 is to enable an easy flow of market reactions and corrections. The Union Budget is the most significant financial event in India that shapes the upcoming fiscal year. Traders and investors should maintain caution and follow the Budget Speech on February 1st. Budgets give the market a sense of the industries that might receive Government support. It might enable prudent fiscal decision-making.

DISCLAIMER: This article is not meant to be giving financial advice. Please seek a registered financial advisor for any investments.

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