Budget 2024 Expectations: How Will Stock Markets React After the Budget?

People are eagerly waiting for the 2024 Budget, with different sectors hoping it will address their needs. President has suggested that this Budget could be very important and make a big impact.

Here’s a breakdown of some of the key expectations from various sectors.

Tax Relief for Middle Class and Salaried Individuals

Following the recent Interim Budget that didn't introduce tax changes, there is anticipation that Budget 2024 could bring relief to middle class earners and salaried individuals. This could involve increasing the income thresholds for tax liability or raising the standard deduction. All India Federation of Tax Practitioners has advocated for lower income tax rates, proposing an increase in the exemption limit to ₹5 lakh.

Focus on Boosting Employment Generation

The government plans to announce initiatives to create more jobs especially focusing on sectors like infrastructure and media. They may increase spending on building roads, bridges and other infrastructure projects which create many job opportunities. Also, there could be announcements to train people for jobs that are currently in demand but need more skilled workers. For instance, Media and Entertainment sector could see specific efforts to boost job creation according to statements from the Minister of Information and Broadcasting. These initiatives aim to match job openings with the skills people have helping more individuals find meaningful employment.

Transforming the Insurance Sector

The government is planning big changes in how insurance works to make sure everyone in India can get insurance by 2047. They want to update the Insurance Act from 1938 to allow life insurance companies to sell health or general insurance too. They also want to make it easier for new specialized insurance companies to start up by letting them have different amounts of money. For smaller insurance companies and ones that focus on specific regions, they might relax the rules about how much money they need to keep on hand. They're even thinking about letting businesses create their own insurance companies just for themselves. And they might change the rules about where insurance companies can put their money to make things better for people who buy insurance. These changes are all about making insurance more accessible and better for everyone who needs it.

Support for Infrastructure and MSMEs

In the upcoming Budget for 2024, the government plans to spend more on building things like roads, bridges and other infrastructure. This is aimed at making it easier to travel and transport goods which should help create jobs and boost the economy overall.

For small and medium sized businesses which are really important for India's economy, the government is likely to announce steps to make their lives easier. This might include making it simpler for them to get loans, reducing complicated rules they have to follow and helping them use digital technology better. These changes are expected to help these businesses grow and contribute more to the country's economy.

Focus on Agriculture and Rural Areas

Gaura Sen Gupta, the chief economist at IDFC First Bank, suggests that the government's upcoming focus is likely to be on increasing spending on infrastructure, supporting rural demand and providing aid to state governments. In the interim budget the allocation towards agriculture and rural areas remained unchanged at 1.3% of GDP but there may be an increase in funding for key schemes like NREGA (which guarantees rural jobs), PM Kisan (supporting farmer incomes) and rural housing initiatives. This indicates a continued commitment to boosting rural economies and addressing agricultural needs amidst ongoing economic priorities.

The upcoming budget is likely to address a wide range of areas beyond those mentioned above. Now, let's understand how the stock markets are likely to react before and after the budget.

How Will Stock Markets React After Budget?

Union Budget for 2024 will be presented on July 23 this year. During the interim Budget in February, Finance Minister Nirmala Sitharaman highlighted Viksit Bharat by 2047 a roadmap expected to be detailed in the full budget. According to Morgan Stanley, the Finance Minister is expected to maintain the central government’s fiscal deficit target at 5.1% of GDP for fiscal year 2025, aiming to reduce it to 4.5% by fiscal year 2026. The brokerage firm also observed that historically, the stock market tends to decline in two out of three instances in the 30 days following the budget presentation. This probability rises to 80% if the market has seen a rise in the 30 days leading up to the budget. In the last three decades, there have been only two instances when the Indian stock market recorded gains both before and after the budget.

According to Morgan Stanley, investors in the Indian stock market should pay attention to three key factors:

1. If the government deviates from its fiscal deficit target (aiming to keep it under 5%), it could affect the stock market negatively. Investors prefer stable fiscal policies.

2. Increased government spending on physical and social infrastructure, especially in rural areas, is likely to boost stocks in consumer goods and industrial sectors. Morgan Stanley is positive on these sectors.

3. If the government doesn't cut taxes or spend money in certain ways, it could surprise the stock market. Investors should watch for specific incentives and spending.

Final Words

Upcoming Union Budget 2024 is crucial for India's economic outlook. It's set to focus on creating jobs, improving infrastructure and reforming sectors like insurance and MSMEs. Middle class taxpayers and salaried individuals are hoping for improvements too. Finance Minister's plans will be closely watched as they unfold, shaping the country's future direction.