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  1. How the budget impacts the stock market

How the budget impacts the stock market

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2 min read • Updated: January 23, 2024, 5:01 PM

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From allocations to raising funds - here are the ways in which the Union Budget could impact the stock markets.

Changes in taxes, both direct (like Income Tax) and indirect (like Customs duties), can sway the market.

As we step into a new year, all eyes are on the interim budget and understanding its impact on the stock market is crucial. Let's break down the ever-relevant topic – five ways in which the budget impacts the stock market, with a special focus on this year's interim budget.

  1. Key allocations

The government's decisions on where to spend money matter a lot. But given its interim budget this year, expect allocation of funds to essential government operations, schemes that are ongoing and time sensitive requirements. Nevertheless, more spending means more jobs and consumption, signalling good news for the market.

  1. Subsidies

Subsidies, especially in food and fertilisers, are lifelines for the rural economy. Do you know, the food and fertiliser subsidies make up for about 1/9th of India’s total budget spending which stands at ₹45 trillion during FY24? Any changes in this amount impacts fertiliser companies and rural consumption, influencing markets in sectors like FMCG and two-wheelers.

  1. Taxes

Changes in taxes, both direct (like Income Tax) and indirect (like Customs duties), can sway the market. While increasing taxes helps the government, it might slow down consumer spending. Traders watch closely for any tweaks in taxes related to trading and market sentiment.Duty changes also matter, as they affect the prices of goods. This isn't just paperwork; it shapes how businesses do financially.

  1. Setting goals

The government sets targets for things like fiscal deficit and GDP growth in the budget. For investors, these targets act like signposts, giving a hint about what's coming. For example, higher GDP targets show confidence in the economy and business, which could make the markets’ optimistic.

  1. Divestment plan

The government's plans to sell or reduce its stake in certain companies are like a map for investors. This year's focus could be on selling Shipping Corporation of India and Concor and privatising IDBI Bank. Investors keep a close eye on these moves, knowing they can shake up the market.

As we navigate through this year's interim budget, the connection between government decisions and the stock market gets more interesting. If you enjoy simple and easy-to-understand insights on the Union Budget, stay tuned to Upstox!