Nirmala Sitharaman to Present Economic Survey 2025 Today
Key Highlights for Stock Market Investors in the Union Budget 2025
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Last Updated: 30th January 2025 - 12:28 pm
Finance Minister Nirmala Sitharaman is set to present the Union Budget 2025 on February 1. As always, this announcement will be crucial for stock market participants, as it influences various industries and helps shape market trends.
In the lead-up to the Union Budget 2025-26, speculation is rife about potential changes, including a reduction in long-term capital gains tax, adjustments in income tax slabs, and fiscal deficit targets.
Top 5 Budget Expectations for Investors
Here are some key areas that investors will closely monitor in the upcoming Budget:
1. Possible Changes in Capital Gains Tax
Reducing capital gains tax has been a long-standing demand among investors. While many experts believe such a move could uplift market sentiment, it remains uncertain whether the government will implement it in Budget 2025.
"Expectations around taxation are largely centered on simplifying capital gains tax to ease compliance and encourage broader market participation. While some speculate a reduction in the Securities Transaction Tax (STT), this appears unlikely given the government’s revenue focus," noted Pranav Haridasan, MD & CEO of Axis Securities.
Shripal Shah, MD & CEO of Kotak Securities, emphasized that while optimism remains high, any reduction in capital gains tax or STT could positively impact market dynamics. He added that such measures would boost domestic retail participation, attract foreign investors, stabilize the rupee, and improve overall market sentiment.
2. Possible Cuts in Income Tax Rates
There is anticipation that the government may increase the basic exemption limit for personal income tax. EY India has suggested raising this limit from ₹3 lakh to ₹5 lakh, which could enhance disposable income and provide a much-needed boost to the economy.
A report by Reuters cited global brokerage firms Citi and Jefferies, stating that a meaningful reduction in income tax for individuals earning between ₹10 lakh and ₹20 lakh annually could stimulate demand.
"We anticipate that the finance minister will aim to simplify tax structures and increase exemption limits to drive consumption, particularly in urban areas where signs of a slowdown have been observed," said Manish Chowdhury, Head of Research at StoxBox.
3. Focus on Fiscal Deficit Targets
The government’s fiscal deficit target has a direct impact on bond yields and, subsequently, the equity markets. A higher-than-expected deficit could raise concerns about inflation and dampen investor confidence, while a well-managed fiscal plan may boost sentiment.
Puneet Singhania, Director at Master Trust Group, predicts the fiscal deficit target could be set at 4.5% of GDP, down from 4.8% in FY 2025. "A reduced fiscal deficit could enhance confidence in capital markets while allowing room for growth-oriented policies in infrastructure and social sectors," he stated.
4. Increase in Capital Expenditure (Capex)
The Indian economy faced several hurdles in the first half of FY25, including reduced capital expenditure due to the election season, extreme weather conditions, weak corporate earnings, and sluggish consumption. However, the second half of FY25 is expected to witness a recovery.
Several brokerage firms anticipate the government may project a 10% rise in capex for FY26, which would benefit sectors such as infrastructure, defense, and railways.
"Maintaining policy continuity while ensuring fiscal prudence will be critical in the upcoming Budget, especially considering the recent slowdown in economic growth and corporate earnings. An increase of 10-12% in capex, a fiscal deficit target of 4.5% for FY26, and initiatives to stimulate private sector investment could set a positive tone for the markets," noted Chowdhury of StoxBox.
However, Haridasan from Axis Securities cautioned that while the government may aim to boost economic growth, excessive capital expenditure might not be feasible due to fiscal constraints.
5. Possible Increase in Customs Duty on Gold
Following a reduction in customs duty on gold in the previous Budget, gold imports surged, raising concerns about its impact on the trade deficit.
Sugandha Sachdeva, founder of SS WealthStreet, indicated that the government might consider raising the basic customs duty on gold in Budget 2025 to curb rising imports.
She highlighted that India spent $47 billion on gold imports in the first 11 months of 2024, significantly exceeding the $42.3 billion spent throughout 2023.
"Given the unprecedented cut in import duties last year, the government may look at increasing the customs duty on gold to control the upward trend in imports," Sachdeva explained.
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