2 Weeks Into Budget 2024: The Impact on the Stock Market

Indian Stock Markets have been on a wild ride in the two weeks following the announcement of the Union Budget for the year 2024. The initial reaction has been both optimistic and mixed, but a bit of scepticism is evident as investors continue to assess and analyse the budget's effects and the direction of the stock market.

In this article, we explore the key budget proposals and their impact on market sentiments

Overview of Key Budget Proposals and Policy Changes

In her Budget 2024 Speech, Finance Minister Nirmala Sitharaman announced new proposals with significant market implications.
 
The budget proposed a raise in the Long-Term Capital Gains (LTCG) tax from 10% to 12.5% for all those stocks that have a gain of more than ₹1.25 lakh. Also, the tax on Short-Term Capital Gains (STCG) was increased from 15% to 20%.
 
In the 2024 budget, the Securities Transaction Tax (STT) on Futures and Options (F&O) trading was also increased from 0.1% to 0.2%. This proposal received mixed responses from investors.
 
Additionally, the Finance Minister announced an increase in capital expenditure by 11.1% to a target of ₹11.11 lakh crore for FY 24-25 which is 3.4% of GDF as earlier announced in the February interim budget. This primarily targets infrastructure development in sectors like transport through roads, railways, and construction.

The FM also announced that to support and encourage states in infrastructure development the government will provide long-term interest-free loans of up to ₹1.5 lakh crores to states.

The budget included some incentives for electric vehicles, renewable power plants, and green hydrogen production too. This focus on clean energy is expected to increase investment and form new growth prospects in the long term for companies in this sector.

How has the Budget Impacted the Market Over the Years?

The announcement of the Union Budget has always had a big impact on the stock market. Historical data shows that stock markets are extremely volatile on budget days. Indexes swing with each budget statement. Beneficiary stocks show a sharp rise whereas some counter stocks see a sharp decline based on the budget announcements.

Markets have historically responded differently to each budget.
 
The BSE Sensex has closed six times higher after the budget announcement in the last ten years, while it has declined four times after the budget announcement. Dalal Street recorded its best budget day gain of 5% in 2021, while it registered its ten-year biggest loss of 2.43% in 2020.

Stock Market Reaction After Two Weeks of Budget 2024

The stock market has initially shown a mixed reaction to the 2024 budget. On 22 July 2024, a day before the budget announcement, the Indian stock market benchmarks, the Nifty 50 dropped by 22 points, or 0.09%, to close at 24,509.25, and the Sensex dropped by 103 points, or 0.13%, to close at 80,502.08.

 After the budget announcement initially, both the Nifty 50 and Sensex were depressed because of apprehensions that were caused by the new higher capital gains tax.
 
NSE Nifty 50 along with the S&P BSE Sensex declined by around 1% each. The Indian rupee also depreciated to a record low of 83.69 against the US dollar. In the second half of the day, the market recovered due to liquidity in the system. The BSE Sensex further dropped by 73.04 points or 0.09% to close at 80,429.04 and Nifty 50 dropped by 30.30 points or 0.12% to close at 24,479.
 
After 1 week of budget announcement on 30th July 2024, the BSE Sensex jumped by 99.56 points or 0.12% to close at 81,455.40 while the Nifty 50 jumped by 21.20 points or 0.09% to close at 24,857.30.
 
On 6th Aug 2024, the BSE Sensex dropped by 166.33 points or 0.21% to close at 78,593.07, and the Nifty 50 dropped by 63.05 points or 0.26% to close at 23,992.55.

There were some sectors that reacted positively to the budget announcement. They are:

• The capital goods and infrastructure sector reacted positively to the budget announcement because of increased allocations to infrastructure projects.

• The defence sector reacted positively to the budget announcement because of the increased emphasis on domestic manufacturing and higher capital outlay for defence.\

• The railway sector reacted positively to the budget announcement because of the significant allocation of railway infrastructure and modernisation projects.

• The rural development and agriculture sector reacted positively to the budget announcement because of the government's focus on rural infrastructure, agriculture credit, and irrigation projects.

 There were some sectors that reacted negatively to the budget announcement. They are:

• Financial markets reacted negatively to the budget announcement because of the introduction of higher taxes on short-term capital gains.
• The FMCG (Fast-Moving Consumer Goods) sector reacted negatively to the budget announcement because the budget did not offer any significant relief to the FMCG sector.
• Real Estate reacted negatively to the budget announcement because of the absence of any major incentives for the real estate sector, such as tax breaks on housing loans, etc.

 So, while the Budget had its impact on investor sentiments, it has smoothed out over time.

To Wrap Up

Two weeks after the announcement of the Union Budget 2024, the Indian stock market has digested its implications. Some sectors have benefited while others have suffered some or other drawbacks.

It is important to understand that the social, economic, and political impacts of the announced budget will only become clearer as the government's plans and projects hit the ground and initiatives are implemented.
 
By staying informed and adopting a cautious approach, investors can navigate the market's uncertainties and capitalise on emerging opportunities.

Disclaimer: The stocks, policies, and companies mentioned above are not recommendations from Finology Insider and should not be considered a substitute for professional advice. We strongly recommend consulting a financial professional or conducting thorough research before making any investment decisions.