The next fortnight will be a volatile phase for the Indian stock markets as they prepare and then digest finance minister Nirmala Sitharaman’s budget proposals for fiscal 2024-25 (FY25).
June quarter corporate earnings season (Q1-FY25), too, analysts suggest, is likely to see stock specific moves and have some bearing on the overall market sentiment.
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Expectations (as measured by pre-budget equity market performance), wrote analysts at Morgan Stanley in a note, are important in determining what the market does immediately after the budget. The market, they said, falls on two of three occasions in the 30 days post the budget.
Market performance around budget
Here is what leading brokerages expect from Nirmala Sitharaman’s Modi 3.0 budget scheduled to be announced on July 23.
BofA Securities
The Centre may raise the income threshold for zero tax from Rs 3-lakh to Rs 5-lakh in the upcoming budget. Consideration to lower income tax rates for individuals earning annual income of Rs 10-lakh is also underway. Given that the government is trying to encourage the taxpayers to adopt the Simplified Tax Regime, a change in the 80C is likely. There is also a growing demand for the expansion of the HRA exemption to include more non-metro cities.
The upcoming budget could propose changes in the tax treatment of income from futures and options (F&O) segments with an aim to discourage retail participation in the derivatives trading.
Morgan Stanley
Expect the fiscal deficit target to be retained at 5.1 per cent of GDP in FY25, in line with the interim budget. Job creation supported through capex, targeted social sector spending and focus on ‘Viksit Bharat’ plan are likely to be the key themes. The budget could also give a road-map for a medium-term plan for fiscal consolidation beyond FY26.
We do not assume a reduction in personal income tax rates (base case); however, there are expectations that the government could use some of the fiscal space to provide tax relief to middle income taxpayers.
Short-term capital gains (STCG) tax rate could be raised from 15 per cent. A hike in the effective long-term capital gains (LTCG) tax on equities either via lengthening of the holding period from 12 months to two or three years to qualify for long-term capital, or an increase in the tax rate from 10 per cent to 15 per cent could be a major dampener for stocks, especially in the broad market. Neither the market nor we expect this.
Goldman Sachs
Budget will go beyond just fiscal numbers, and likely make an overarching statement about long-term economic policy of the government towards 2047. Thrust on rural economy, job creation through labor-intensive manufacturing, support for MSMEs, skilling and high quality services jobs. A reduced political mandate will require more political capital to be spent behind passing structural reforms like land reform and farm sector reforms.
Nomura
Motilal Oswal Securities
While tax estimates may not change, record-high RBI dividends could help the government to spend an additional amount of about Rs 1.1 trillion this year, while reducing the fiscal deficit target to 5 per cent of GDP in FY25.
