The impact of the Union Budget on the Indian stock market is a subject of significant interest for investors and financial analysts alike. The Union Budget 2024 has introduced various measures that could potentially influence the stock market's trajectory. On the stock market budget day 2024, sectors such as infrastructure, agriculture, and telecom witnessed notable allocations, which are expected to drive growth and attract investments. The budget effect on the share market was immediately visible as initial reactions led to fluctuations in market indices, reflecting investor sentiment towards the new fiscal policies.

Understanding the impact of the Union Budget on the Indian stock market involves analyzing the specific allocations and reforms introduced. The stock market budget day 2024 highlighted the government's commitment to enhancing infrastructure and fostering innovation across various sectors. This strategic focus aims to boost long-term economic growth, despite the initial volatility seen in the markets. As the budget effect on the share market continues to unfold, investors are closely monitoring sectors like manufacturing, financial services, and the space economy for potential investment opportunities, reflecting the broader economic vision outlined in the budget. Let's look at howUnion Budget 2024 Impacted the Indian Stock Market in detail.

Key Highlights of Union Budget 2024

The recently announced budget places a significant emphasis on employment, skilling, and the support of Micro, Small, and Medium Enterprises (MSMEs), alongside provisions for the middle class. The centerpiece of the budget is the Prime Minister’s comprehensive package, which includes five key schemes and initiatives aimed at generating employment, enhancing skills, and creating opportunities for 4.1 crore youth over the next five years, backed by a central outlay of INR 2 lakh crore. Additionally, INR 1.48 lakh crore has been allocated specifically for education, employment, and skilling.

Budget Priorities

Aligning with the Viksit Bharat strategy introduced in the interim budget, this budget outlines sustained efforts across nine priorities to generate ample opportunities for all:

1. Productivity and Resilience in Agriculture

2. Employment & Skilling

3. Inclusive Human Resource Development and Social Justice

4. Manufacturing & Services

5. Urban Development

6. Energy Security

7. Infrastructure

8. Innovation, Research & Development

9. Next Generation Reforms

Priority 1: Productivity and Resilience in Agriculture

The agriculture sector will see transformative changes through enhanced research focused on productivity and climate resilience, with 109 new high-yielding and climate-resilient crop varieties being released. The push towards natural farming will involve 1 crore farmers, supported by certification, branding, and the establishment of 10,000 bio-input resource centers. Significant initiatives include strengthening the production, storage, and marketing of pulses and oilseeds, developing large-scale vegetable production clusters, and implementing Digital Public Infrastructure (DPI) in agriculture. A provision of INR 1.52 lakh crore is allocated for agriculture and allied sectors.

Priority 2: Employment & Skilling

Employment Linked Incentives:

• Scheme A: First Timers: Offers one-month wages (up to INR 15,000) for new workforce entrants.

• Scheme B: Job Creation in Manufacturing: Incentivizes additional employment in manufacturing.

• Scheme C: Support to Employers: Reimburses employers up to INR 3,000 per month for EPFO contributions for each additional employee for two years.

Skilling Programs:

• Youth Skilling: A new centrally sponsored scheme aims to skill 20 lakh youth over five years.

• Upgraded ITIs: 1,000 Industrial Training Institutes (ITIs) will be upgraded to align with industry demands.

• Skilling Loans: Revised Model Skill Loan Scheme to offer loans up to INR 7.5 lakh with government guarantees.

• Education Loans: Financial support for loans up to INR 10 lakh for higher education.

Priority 3: Inclusive Human Resource Development and Social Justice

Saturation Approach: Comprehensive social justice through saturation coverage of education and health programs.

Purvodaya: Focuses on the development of the eastern region, including new infrastructure and economic opportunities.

Women-Led Development: Allocation of over INR 3 lakh crore for women and girl-benefitting schemes.

Priority 4: Manufacturing & Services

Support for MSMEs:

• Credit Guarantee Scheme: For term loans to MSMEs without collateral.

• New Credit Assessment Model: Public sector banks to develop new models based on digital footprints.

• Credit Support during Stress Periods: Facilitates continuation of bank credit for MSMEs during stress periods.

• Mudra Loans: Enhanced limit to INR 20 lakh for successful borrowers.

• TReDS Onboarding: Reduced turnover threshold for mandatory onboarding, expanding to 7,000 more companies.

• SIDBI Branches: Expansion to 168 MSME clusters within three years.

• Food Irradiation and Testing: Support for setting up 50 irradiation units and 100 testing labs.

• E-Commerce Export Hubs: Facilitating MSMEs in international markets through PPP mode.

Priority 5: Urban Development

Cities as Growth Hubs: Development through economic and transit planning, with creative redevelopment frameworks and transit-oriented development plans for large cities.

Urban Housing: Under PM Awas Yojana Urban 2.0, addressing housing needs of 1 crore urban poor and middle-class families with a central assistance of INR 2.2 lakh crore.

Water Supply and Sanitation: Promoting projects for water supply, sewage treatment, and solid waste management in 100 large cities.

Priority 6: Energy Security

Energy Transition Policy: Drafting pathways balancing employment, growth, and sustainability.

PM Surya Ghar Muft Bijli Yojana: Encouraging participation with over 1.28 crore registrations.

Pumped Storage Policy: Promoting projects for electricity storage.

Nuclear Energy: Development of small and modular reactors, and research in new technologies.

AUSC Thermal Power Plants: Setting up a full-scale plant using indigenous technology.

Roadmap for ‘Hard to Abate’ Industries: Transitioning from energy efficiency to emission targets.

Priority 7: Infrastructure

Central and State Investment: Provision of INR 11.11 lakh crore for capital expenditure, and INR 1.5 lakh crore for long-term interest-free loans to states.

Private Investment: Promotion through viability gap funding and enabling policies.

PMGSY Phase IV: Launching to provide all-weather connectivity to 25,000 rural habitations.

Tourism Development: Comprehensive development plans for Vishnupad Temple Corridor, Mahabodhi Temple Corridor, Rajgir, Nalanda, and Odisha.

Priority 8: Innovation, Research & Development

Anusandhan National Research Fund: For basic research and prototype development.

Space Economy: Venture capital fund of INR 1,000 crore for expanding the space economy.

Priority 9: Next Generation Reforms

Economic Policy Framework: Setting the scope for next-generation reforms to facilitate employment opportunities and sustain high growth.

Land Reforms: Incentivizing states for land administration, planning, and management.

Labour Services: Comprehensive integration of e-shram portal with other services for ease of compliance and job matching.

Financial Sector Vision: Preparing for future needs with a strategic document guiding government, regulators, and market participants.

Changes in Taxation Policies

Impact of the Budget on Income Tax Slabs for FY 2024-25

New Income Tax Slabs Announced in the Budget 2024

In the Union Budget 2024, significant changes were introduced to the income tax regime, aimed at simplifying the tax system and providing relief to taxpayers. Below are the key highlights:

• Standard Deduction Increase: The standard deduction for salaried employees has been increased from Rs. 50,000 to Rs. 75,000. For family pensioners, it has been raised to Rs. 25,000.

• Revised Income Threshold for 5% Tax Rate: The threshold for the 5% tax rate has been increased from Rs. 5 lakh to Rs. 7 lakh.

Latest Income Tax Slabs Under the New Tax Regime for FY 2024-25

The following table outlines the updated income tax slabs for the fiscal year 2024-25:

Comparison Between Current and Proposed Tax Slabs

The table below compares the current tax slabs with the proposed tax slabs under the new regime:

Current New Tax Regime Features

The new tax regime is now the default system for calculating individual tax liability. Here are its key features:

• Five Income Tax Slabs: Simplified structure with the highest tax rate of 30% for income exceeding Rs. 15 lakh.

• Basic Exemption Limit: No tax on income up to Rs. 3 lakh.

• Tax Rebate: For incomes up to Rs. 7 lakh, no tax payable due to a rebate of up to Rs. 25,000 under Section 87A.

• Standard Deduction: Rs. 75,000 for salaried individuals and Rs. 25,000 for family pensioners.

• Surcharge on High Incomes: 25% surcharge on incomes above Rs. 5 crore.

• Marginal Tax Relief: For small taxpayers with incomes slightly over Rs. 7 lakh.

These changes are designed to provide tax relief to a broader section of taxpayers, simplifying the tax structure, and encouraging long-term investments.

Summary of Capital Gains Tax Changes For Listed & Unlisted Financial Products

The increase in Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes indicates a strategic move by the government to encourage longer-term investments. By creating a more substantial gap between short-term and long-term gains, the government aims to foster a stable and mature investment environment. This shift is part of a broader strategy to simplify and rationalize the tax code. Standardizing the LTCG tax rate at 12.5% and removing differential treatment across asset classes makes the tax system more straightforward, including harmonizing the definitions and tax rates of capital gains across various investment vehicles.

*12 months, *36 months. Changes for gold funds, FoFs, feeder funds apply after 1 April 2025. Changes for other asset classes are effective for assets sold after 23rd July 2024.

How does Budget Impact Stock Markets?

Budget 2024’s Immediate Impact on Share Market Activity

Initially, the increase in taxes on both long-term and short-term gains led to a bearish outlook among market participants. Retail investors and small traders, who have significantly increased their participation in recent years, might feel deterred by these changes. This initial reaction was reflected in a dip in market indices.

However, historical trends show resilience. For example, indices like the BSE Sensex and Nifty 50 recovered quickly after the initial dip. This pattern mirrors previous instances, such as the quick market recovery post-election on June 4, suggesting that the market may stabilize soon after the initial shock.

Retail Investors' Influence

The Economic Survey 2024 highlights the growing influence of retail investors in the market. Retail investors' share in the equity cash segment turnover was 35.9% in FY24, with a significant increase in demat accounts from 11.45 crore in FY23 to 15.14 crore in FY24. This increase indicates robust participation from retail investors, who have been instrumental in the market's growth.

Since the pandemic lows of April 2020, the Indian stock market has more than tripled, driven largely by the participation of retail investors. The strategy of 'buying the dip' has become prevalent, reflecting strong confidence in the market's continued upward trajectory. This behavior suggests that despite the initial bearish response to the tax changes, retail investors may continue to play a crucial role in supporting the market.

Sector-wise Budget Impact on the Stock Market

The FY25 Budget reveals a significant shift in government expenditure, emphasizing infrastructure development while allocations for social sectors such as education, health, and agriculture have either stagnated or declined. This strategic pivot is evident from the detailed analysis of budget allocations and sectoral expenditures.

The accompanying graph illustrates the budgeted expenditure (Rs crore) for FY25BE and the change from FY24RE in percentage points. Larger rectangles denote higher allocations, with deeper blue indicating increased funding and deeper red showing reductions compared to FY24RE.

A considerable Rs 11,62,940 crore, constituting 24.12% of the total budget, has been allocated for interest payments. This marks an increase of 0.62 percentage points from FY24RE, underscoring the growing burden of debt servicing on the fiscal budget.

Increased Focus on Infrastructure, Railway, Power & Urban/ Rural Housing

• Transport Sector: The transport sector, encompassing the Ministry of Road Transport and Highways (MORTH) and the telecom department, formed a substantial portion of the budget at 11.29%. Despite a slight reduction of 0.4 percentage points from last year, the sector remains a priority with significant allocations to road and telecom infrastructure.

• Railway Ministry: The outlay for the Railway Ministry continues to exceed 5% of the total budget, with increased funding for signalling and telecom works, including the KAVACH system, which enhances train collision prevention mechanisms.

• Power Sector: Marginal improvements in allocations indicate ongoing efforts to bolster the energy infrastructure.

• Urban and Rural Housing: Outlays for housing and basic urban amenities have seen slight improvements, although allocations for smart city missions have notably declined.

Stagnant allocation for Agriculture, Defence & Space Sectors

• Agriculture: Allocations for agriculture have stagnated at around 3.1% of the total budget. Flagship schemes like Pradhan Mantri Fasal Bima Yojana (PMFBY) and Pradhan Mantri Kisan Samman Nidhi (PMKSN) have seen a decline in their share of the budget.

• Defence: Defence spending has decreased to 9.43% of the total budget, the lowest in nine years, with an absolute reduction in expenditure.

• Space and Science & Technology: While allocations to the Department of Space have stagnated, the Science and Technology Ministry has seen a minor increase to 0.17% of the total budget.

Decline in Allocation for Health, Education & Social Welfare Sectors

• Health, Education, and Rural Development: These sectors have either stagnated or experienced declines in their budget shares. Notably, schemes such as MGNREGA, Samagra Shiksha, Ayushman Bharat, old age pension, widow pension, and Swasthya Suraksha have all seen reduced allocations.

• Social Welfare: The exception within the social sectors, with its share improving to 1.17% of the total budget.

Government Spending and Investments

The Union Budget for FY25 has strategically utilized the excess dividend from the Reserve Bank of India (RBI) to enhance revenue expenditure, while maintaining the capital expenditure estimate. This approach reflects a balanced strategy aimed at accelerating fiscal consolidation and boosting human capital development.

Key Highlights of Government Capex

• Increased Revenue Expenditure: The full FY25 Budget increased revenue expenditure by Rs 54,744 crore to Rs 37.09 trillion, compared to the Interim Budget.

• Unchanged Capital Expenditure: The capital expenditure estimate remains unchanged at Rs 11.1 trillion.

• Use of RBI Dividend: The RBI's excess dividend of 0.4 per cent of GDP has been partly utilized to improve the fiscal path and increase allocations for labour, skill development, and health.

Fiscal Strategy and Growth Projections

The increased revenue expenditure allocation, which constitutes 0.2 per cent of GDP, is targeted at enhancing labour and skill development and improving health outcomes. This is expected to bolster human capital in the long run. Additionally, higher transfers to states, particularly Bihar and Andhra Pradesh, are part of the fiscal strategy. The expected capex growth for FY25 is around 17%, implying a significant boost in the latter half of the fiscal year. However, the absorptive capacity of the system will be a critical factor to watch as the general government aims to ramp up capex.

Industry and Infrastructure Development

Despite industry bodies advocating for a 25 per cent increase in capex over the revised estimates of FY24, the budgeted increase is 16.9 per cent. Finance Minister Nirmala Sitharaman stated that capex for FY25 is projected to be 3.4% of GDP.

Specific schemes have seen notable changes in allocation:

• Interlinking of Rivers: Rs 4,000 crore allocated.

• Pradhan Mantri Awas Yojana: Rs 8,4671 crore allocated.

• Pradhan Mantri Krishi Sinchayee Yojana: Allocation reduced to Rs 9,339 crore.

Labour and Skill Development

The budget has earmarked Rs 22,472 crore for labour, employment, and skill development, marking an increase of Rs 9,367 crore over the FY24 revised estimates. A new Employment Generation Scheme has been introduced to address unemployment and skill gaps.

Financial Support to States

The share of taxes and duties allocated to states has been increased to Rs 21 per Rs 100 of government expenditure, up from Rs 20 in the Interim Budget. Additionally, Finance Commission and other transfers have been increased to Rs 9 from Rs 8. Notably, the share of interest payments has decreased from Rs 20 to Rs 19.

Provisional Actuals and Special Financial Support

For the first time, the budget includes Provisional Actuals (PA) for FY24, providing transparency based on the latest data from the Controller General of Accounts. These figures, however, are unaudited and subject to change.

The budget also outlined special financial support for Andhra Pradesh and Bihar:

• Andhra Pradesh: Rs 15,000 crore for the development of its capital, facilitated through multilateral development agencies.

• Bihar: Rs 26,000 crore for road connectivity projects and Rs 21,400 crore for a new 2,400 MW power plant at Pirpainti. Additional investments include new airports, medical colleges, and sports infrastructure.

Investment Strategies Post Union Budget 2024

The FY25 Budget outlines strategic allocations aimed at fostering growth and development across various sectors. Here’s a detailed look at the key sectors poised for substantial growth and the potential opportunities for investors:

1. Infrastructure

Significant Allocations:

• Capital Expenditure: The budget has allocated Rs 11.11 lakh crore for capital expenditure, focusing on expanding the country's road network and transforming the transport landscape.

• Pradhan Mantri Gram Sadak Yojana (PMGSY): Phase four aims to connect 25,000 rural habitations.

• Rural Development: Rs 2.66 lakh crore allocated to enhance rural infrastructure and development.

Key Projects:

• Amritsar-Kolkata Industrial Corridor: Development of an industrial node at Gaya.

• Investments in Power, Railways, and Road Corridors: Companies like Larsen & Toubro and GMR Infrastructure stand to benefit from these substantial investments.

Outlook: The heavy emphasis on infrastructure development promises positive growth trends and attractive returns for investors focusing on this sector.

2. Agriculture

Budget Allocation: Rs 1.52 lakh crore has been allocated to the agriculture sector.

Key Initiatives:

• Biotechnology and Digital Farming: Establishment of 10,000 bio-research centres and development of digital agriculture infrastructure.

• Opportunities for Agri-Tech Startups: Innovations in sustainable farming, precision agriculture, and farm management.

Beneficiary Companies: Mahindra Agri Solutions, ITC Limited, Kaveri Seed, Mangalam Seeds, CDSL, and CE Info Systems.

Outlook: The focus on technological advancements and sustainable practices in agriculture provides a fertile ground for growth and investment.

3. Space Economy

Significant Move: Rs 1,000 crore fund for space startups, aiming to expand the space economy fivefold over the next decade.

Key Beneficiaries: ISRO’s commercial arm Antrix, and private players like Skyroot Aerospace.

Outlook: Increased investments and government support in space exploration and satellite technology present substantial growth opportunities.

4. Manufacturing and Services Sector

Job Creation and Skilling:

• Industrial Training Institutes (ITIs): Establishment of 1,000 ITIs and internships for 10 million youth.

• Incentivised Job Creation: Scheme linked to employment of first-time employees with EPFO contributions.

Beneficiary Companies: Tata Steel, JSW Steel, involved in the creation of 12 industrial parks under the National Industrial Corridor Development Programme.

Outlook: The emphasis on job creation and skilling in innovative sectors promises robust growth and enhanced productivity in manufacturing and services.

5. Telecom Sector

Major Allocation: Rs 1.28 lakh crore for telecom projects and public sector companies under the telecom ministry.

Key Allocations:

• BSNL: Rs 82,916.20 crore.

• MTNL Bonds: Significant funds earmarked for payment.

Beneficiary Companies: Reliance Jio, Bharti Airtel.

Outlook: Improved connectivity and technological advancements will drive growth and opportunities in the telecom sector.

6. Railway and Defence Stocks

Railways:

• Infrastructure Development: Funds allocated for essential infrastructure in specific nodes of industrial corridors.

• Signalling and Telecom: Increased allocations for projects like KAVACH.

Beneficiary Companies: Indian Railway Catering and Tourism Corporation (IRCTC).

Defence:

• Increased Allocation: Rs 6.21 lakh crore, up 4.8% from the previous year.

• Beneficiary Companies: Bharat Dynamics, Hindustan Aeronautics Limited (HAL).

Outlook: Continued support and strategic focus in railways and defence sectors present attractive investment opportunities.

7. Financial Services Sector

Financial Inclusion: Establishment of over 100 branches of India Post Payment Bank in the northeast region.

Beneficiary Companies: SBI, HDFC, fintech companies.

Outlook: Expansion of financial services and inclusion initiatives will drive growth and customer base expansion in the sector.

Changes in Duties, Laws, and New Schemes

1. Agriculture and Energy Reforms: Investments aligned with national goals, such as agriculture-related reforms and solar energy security, can yield promising returns. Beneficiary companies include IRB Infrastructure and Adani Ports.

2. Incentive Schemes for Electronics Manufacturing: Substantial sops for semiconductors and large-scale electronics manufacturing, benefiting major players like Micron and Tata Electronics.

3. Custom Duty Reductions: Reduction in custom duties on metals expected to boost jewellery stocks. Beneficiary companies include Kalyan Jewellers.

What Budget 2024 Means for Investors

The budget's prioritization of infrastructure, while necessary for long-term economic growth, raises concerns about the stagnation and reduction in social sector funding. Enhancing infrastructure is crucial for boosting economic activities and improving overall connectivity and efficiency. However, the underfunding of critical social sectors may have long-term repercussions on human capital development and social welfare.

Investors should focus on sectors receiving significant allocations and support from the budget, such as infrastructure, agriculture, space economy, manufacturing, telecom, railways, and financial services.

FAQs

What is the Union Budget and why is it important for the stock market?

The Union Budget is an annual financial statement presented by the government outlining its revenue and expenditure plans for the upcoming fiscal year. It is important for the stock market because it includes policies and allocations that can influence economic growth, sector performance, and investor sentiment, thereby impacting stock prices and market trends.

Which sectors are expected to benefit the most from the Union Budget 2024?

Sectors expected to benefit the most from the Union Budget 2024 include infrastructure, agriculture, space economy, manufacturing, telecom, and financial services. Significant allocations and supportive policies in these areas aim to drive growth and attract investments.

How can changes in taxation policies impact stock market performance?

Changes in taxation policies, such as adjustments in capital gains tax rates or corporate tax rates, can impact stock market performance by influencing investor behavior and corporate profitability. Higher taxes might deter investment and reduce disposable income, while tax cuts can boost market sentiment and increase investments.

What are the short-term and long-term effects of the Union Budget on the stock market?

In the short term, the Union Budget can cause volatility in the stock market as investors react to new policies and allocations. In the long term, the budget's focus on key sectors and economic reforms can drive sustained growth, enhance market stability, and improve overall investor confidence.

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