Fiscal consolidation to higher allocations: What stock market expects from Union Budget 2024

Benchmark indices have touched record-high levels ahead of the release of Union Budget 2024 this month. The bullish sentiment in the broader market was already seen since June-end, as the return of the BJP-led NDA government for the third time raised hopes of policy continuity.

This is also the first budget under the third tenure of Prime Minister Narendra Modi, and Dalal Street expects pro-market measures.

In the Interim Budget tabled in February 2024, Finance Minister Nirmala Sitharaman laid emphasis on capital expenditure and infrastructure building.

However, experts predict the markets to face some volatility before the budget that is set to be presented on July 23.

Here is a look at the key expectations of the stock markets from Budget 2024.

Fiscal consolidation

Stock markets expect the government to continue its fiscal consolidation path without sacrificing growth. India’s GDP expanded at 8.2% in FY 2023-24 following a 9.7 % growth in FY23 and 7% in FY22.

At the same time, the government managed to bring down the fiscal deficit to 5.6% in FY 2023-24 from as high as 9.17% in FY 2020-21 due to the COVID-19 pandemic. The government has proposed bringing the fiscal deficit down to 4.5% by FY26.

Fiscal consolidation would help rein in inflation and interest rates which could support rate-sensitive stocks such as auto, realty and banking.

Capital expenditure

Stock markets are expecting higher allocations for key sectors like railways. Market observers remain hopeful, as the government allocated ₹11.1 lakh crore towards capital expenditure for FY25 in the Interim Budget, which marked a 16.9% rise over revised estimates of FY 2022-23.

The government announced a capex outlay for infrastructure development and employment generation. It also announced three railway corridor programmes under PM Gati Shakti and the upgrading of 40,000 normal bogies to the level of Vande Bharat trains.

Stock markets expect there is room for boosting agriculture and manufacturing through targeted schemes like PLIs. Pushing revenue growth along with sustaining capex would give the right signals to the markets.

Tax sops

Sitharaman did not announce any tax relief to taxpayers and investors in the Interim Budget in February. Investors are expecting some tax measures in the new NDA government's first full budget to increase disposable income in the hands of the common man.

There is also an expectation of a higher tax exemption limit of up to ₹5 lakh from the current ₹3 lakh under the new income tax scheme.

Also, the market expects that the budget will not curtail the benefit of capital gain tax on equities.

Measures to boost consumer spending

Following the general election results, the market has been expecting some populist measures. Experts believe that the finance minister may announce measures to boost consumer spending and support for the rural sector to leave more money in the hands of the common man. This money could boost spending and support FMCG and consumer goods shares.

Key market index NIFTY rebounded from its record single-day loss of June 4 after the poll results. The stock index has hit a record level of 24,400 following gains in IT, banking, and capital goods shares. Experts now believe NSE NIFTY will reach 26,000 points by 2025. The index has risen around 12% this year so far. Investors are looking at the budget to be the next trigger for the NIFTY.