Budget 2025 Expectations: Five key points by stock market experts you need to know

Amid multiple challenges, such as a continuous fall in the equity market, an exodus of foreign institutional investors (FIIs), slowing corporate earnings, decelerating economic growth, high inflation, and global headwinds in the form of tariff threats by the US, all eyes are on the finance minister as to what she has in store to stimulate the economy.

Stock market experts opine that some tax relief for the lower-income group, an increase in the capex target, bringing back the LTCG (long-term capital gains) tax rates to 10%, and some rationalisation in the securities transaction tax (STT) will be positive for the equity market.

Mohit Khanna, CFP, Fund Manager, Purnartha One Fund, Purnartha Investment Advisers, says that the market direction from here depends on three key factors. They are ongoing Q3 earnings and the managements’ outlook, the announcements made in the upcoming Union Budget, and lastly, the interest rate trajectory as decided by the RBI.

After the recent correction, it is time for investors to focus on pure-play bottom-up investing rather than taking a market call, Khanna suggests.

Pure play means those companies that are engaged in a single line of business. Bottom-up investing is a stock-picking strategy. It means spotting individual companies that are undervalued by the market.

As regards the Union Budget, Khanna said that the Budget cannot be below expectations for all the sectors at the same time! Instead of sectors, "we are placing our bet on the emerging themes. In this regard, rural recovery could be a strong outperformer. Inflation is trending down and should help RBI in reducing interest rates," the expert added.

Lower interest rates along with increased Budgetary allocations could kick-start recovery in rural incomes and the economy. Manufacturing industries like irrigation pipes, rural housing, two-wheelers, FMCG, etc., could benefit from this trend.

Additionally, growth in the government’s capital expenditure (capex) should benefit themes like power—traditional/renewable generation and transmission, railways—modernisation and safety, mass transportation like metro, etc.

"We could also see the expansion of the PLI scheme to newer sectors," Khanna said.

On personal income tax rate structure, Khanna said they were expecting some relief for the lower-income group that has been struggling under high inflation recently. Moreover, there should be increased incentives for higher-income groups to transition to the new regime.

On STT, the expert said that as a result of a high trading volume, STT collection has already reached 97% of the budgetary estimates by December 2024. Therefore, there is an expectation of some rationalisation in STT rates.

There is an expectation that the government will roll back the LTCG rate to 10% from the 12.5% that it announced in July 2024.

It must be noted that the 2024-25 Budget hiked short-term capital gains tax (STCG) on listed equity, equity-oriented mutual funds, and units of a business trust to 20%, from 15%.

Long-term capital gains (LTCG) tax on these securities, too, was hiked to 12.5% from 10% earlier.

"LTCG up to ₹1.25 lakh annually will be exempt from tax, up from ₹1 lakh previously. Equities held for more than one year are considered long-term," the Budget document read.

Besides, STT on the sale of an option in securities was also hiked from 0.0625% to 0.1% of the option premium in the FY25 Budget, and on the sale of futures from 0.0125% to 0.02% of the price at which such futures are traded.

STT is a kind of financial transaction tax. It is a direct tax levied on every purchase and sale of securities that are listed on the recognised stock exchanges in India. Taxable securities include equity, derivatives, and units of equity-oriented mutual funds. STT is an amount that is paid over and above the transaction value and hence increases the transaction value.

Divam Sharma, Co-Founder and Fund Manager at Green Portfolio, says that if the government comes out with a robust tax framework and better execution of agreements in the public and private sectors, markets might open and close on an exhilarating note on the Budget Day.

"Although we are certain of the short-term volatility to remain, as a fund, we are seeing a robust set of Q3 results, and we are sure we would ride on a rally once the global pressures wave off," Sharma added.

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