How does Budget 2023 affect your portfolio

Every year, the Indian Finance Minister delivers the Union Budget, which is an important document that details the Government's revenue and spending for the coming fiscal year. It has far-reaching effects on various sectors of the economy and also on individual finances. As an investor, it is important to understand how the Union Budget can impact your investment portfolio.

The Union Budget can impact your investment portfolio through its impact on the economy. The budget announcements on government spending, subsidies, and allocation of funds to various sectors can influence the growth and stability of the economy.

This, in turn, can affect the performance of multiple companies and industries, which can directly impact your investment portfolio. For instance, if the government announces increased spending on infrastructure, it can benefit the construction and engineering sectors, which can lead to an increase in the stock prices of companies in these sectors.

The Union Budget also has a direct impact on various financial markets. For example, changes in interest rates can impact the returns on fixed-income securities like bonds and debentures. A decrease in interest rates can lead to an increase in the demand for these securities, resulting in an increase in their prices. 

Whereas an increase in interest rates can lead to a decrease in demand, causing a fall in prices. Similarly, changes in the customs duty and excise duty rates can impact the import and export of goods, affecting the prices and performance of companies in the affected sectors.
Another factor that can impact your investment portfolio is the government's focus on specific sectors. 

The Union Budget can announce measures to support and promote the growth of specific industries, such as agriculture, manufacturing, or technology. This can result in increased investment and growth opportunities in these sectors, leading to an increase in the stock prices of companies operating in these sectors.

Tune of the New Budget and its sound to your investments

The Indian budget for 2023 has been unveiled with seven priorities for the budget, named Saptarishi, which include inclusive development, reaching the last mile, infrastructure and investment, unleashing potential, green growth, youth power, and the financial sector. These priorities are expected to play a crucial role in driving the Indian economy, which is projected to grow at 7% in 2023. We will explore how the new budget could affect your investments and what you should keep in mind when making decisions about your portfolio.

Infrastructure and investment are key areas that the budget focuses on. The government has increased the capital investment outlay for the third year in a row by 3.3% of GDP to ₹10 lakh crores. This move is expected to boost the construction and development of key infrastructure projects, including roads, bridges, and ports, which will not only improve the standard of living of the citizens but also provide investment opportunities for individuals. 

The railway has also been given a boost, with the government providing a capital outlay of ₹2.40 lakh crores, which is nine times the outlay made in 2013-14. This move is expected to modernise the railway network, improve its efficiency, and provide new investment opportunities for individuals.

The energy sector has also been given a boost, with the government allocating ₹35,000 crores for the energy transition. This move is expected to drive the production and use of clean energy sources, such as solar and wind energy, which will not only benefit the environment but also provide investment opportunities for individuals. 

The focus on battery storage is also expected to drive the production and use of electric vehicles, which will reduce the dependence on fossil fuels and improve air quality. In addition, the custom duty exemption on the import of capital goods used in the manufacture of the lithium-ion batteries used in electric car batteries is anticipated to lower the cost of electric vehicles for the average person and promote growth in the automobile industry.

The pharma sector has also been given a boost with the launch of a new program to promote research and innovation. The aim is to encourage the industry to invest more in research and development, which is expected to lead to the development of new and improved drugs. This will not only benefit the industry but also improve the health of the citizens. The move is expected to drive the growth of the pharma sector, providing investment opportunities for individuals.

Green growth is another area that the budget focuses on. India is moving towards net zero carbon emissions by 2070, and the government is taking several steps to achieve this goal. The government would assist one crore farmers in adopting natural agricultural practices over the next three years, which are more environmentally responsible and sustainable.

This move is expected to reduce the dependence on chemical fertilisers and pesticides, improve soil fertility, and increase the yield of crops. Additionally, the move is expected to benefit the environment, providing a cleaner and healthier environment for the citizens. This would impact the businesses engaged in the manufacturing of chemical fertilisers.

Youth power has also been given special attention in the budget. The government has announced the setup of 100 labs to develop 5G applications, and this is anticipated to give young people new employment opportunities. This move is expected to drive the growth of the technology sector, providing investment opportunities for individuals. The move is also expected to improve the standard of living of the citizens, as more young people will have access to well-paying jobs.

The financial sector has also been given a boost, with the promotion of tourism being taken up on mission mode. This move is expected to drive the growth of the travel services sector, providing investment opportunities for individuals. The move is expected to boost the economy, as more people will have access to tourism services, and more businesses will be set up to cater to the increased demand.

Personal Tax proposal

One of the budget's most remarkable improvements is the revision of personal income tax slabs, which would have a direct and significant impact on an individual's investment portfolio. The number of slabs has been reduced, and the maximum exemption limit has been increased to ₹3 lakhs in the new regime.

The Section 87A rebate has been increased from the current ₹5 lakhs to ₹7 lakhs in the new tax regime. This change provides relief to individuals earning up to ₹7 lakhs and even people who don't want or understand the complexities of deductions, as the marginal tax in the new regime is less compared to the old, even after accounting for the 80C deduction.

Yes, the changes in the personal income tax slabs and the increase in the exemption limit and rebate could have a significant impact on an individual's investment portfolio. By reducing the number of slabs and increasing the exemption limit and rebate, the government is aiming to provide relief to taxpayers and increase their disposable income. With more disposable income, individuals may have more funds available to invest, leading to an increase in investment activity.

However, it's important to note that this change in tax policy could also have some negative consequences. For example, the reduced number of tax slabs could result in a higher tax rate for individuals in the higher brackets, which could lead to a decrease in their disposable income and investment activity. 

The changes in the personal income tax slabs and exemptions could have a significant impact on individuals' investment portfolios. It could provide relief to taxpayers and increase their disposable income, leading to increased investment. However, the effects of these changes will depend on various factors, including the individual's personal financial situation and investment goals.

The Bottom Line

The budget can significantly impact an individual's investment portfolio, both positively and negatively. Directly, the budget can affect investments through changes in tax policies, which can directly impact the amount of disposable income available for investment.

Additionally, the budget can also have an indirect impact by highlighting the government's focus on specific sectors, which can drive growth and provide investment opportunities in those areas. However, if the sectors in which an individual has invested do not align with the government's priorities, it can result in a negative impact on the investment portfolio. As such, it is important for investors to closely monitor the budget announcements and assess how they could impact their investments.