Markets React to 2024 Interim Budget: Over the Moon or Feeling Gloomy?

The 2024 Interim Budget has been a focal point for market analysts, traders, and investors alike.

With key announcements impacting fiscal policies and market dynamics, dissecting how these changes shape the overall market sentiment is crucial.

Here is a look at how the Interim Budget announcements bode for the economy, sectors, and markets.

Fiscal Policies and Market Reaction

1. Fiscal Deficit and Borrowing:

• Fiscal deficit is the difference between the total income and the total expenditure of the government in a year. The fiscal deficit at 5.1% and gross borrowing of Rs 14.13 lakh crore for FY25 surpassed market expectations.

• What this means is that the Centre will borrow Rs 14.13 lakh crore from the markets in 2024-25 in gross terms to finance its fiscal deficit of 5.1% of the GDP. This is Rs 1.3 lakh-crore lower compared to the estimate of Rs 15.43 lakh crore for the current fiscal, and it has topped market expectations.

• There was also a positive impact on bond markets, reflecting a better-than-expected fiscal discipline.

2. Capital Spending and Growth:

• An 11.1% increase in capital spending at Rs 11.11 trillion for the fiscal year starting 1st April 2024 aligned with market expectations and also cheered the infra sector.

• This should create a multiplier impact on the economic growth, employment creation, and bolster growth until private capital expenditure ramps up.

3. Infrastructure Focus:

• Emphasis on railways, metros, power, and capital goods – the government spending in these areas is expected to remain robust, offering sustained support.

• In railways, three major economic railway corridor programmes will be implemented– (1) energy, mineral, and cement corridors, (2) port connectivity corridors, and (3) high-traffic density corridors. This could spur development in the railway sector.

• The Ministry of Road Transport and Highways (MoRTH) will get an allocation of Rs 2.78 lakh crore in FY25, up 2.8% year-on-year. This could help boost activity in the construction and highways sector.

4. Green Energy:

• The ‘Pradhan Mantri Suryoday Yojna' or the rooftop solar scheme is expected to result in savings of about 300 units of electricity per month for such homes. This signals that the government is looking at building green energy infrastructure and it could help many related sectors.

Taxation and Investment Impact

• Stability in Capital Gains and Taxes

There was no change in long-term/short-term capital gains tax and direct or indirect taxes. This means that the investment returns are unaffected by the budget and remain unchanged for investors, maintaining the status quo in post-tax return economics.

• Market Outlook:

As far as the markets are concerned, the big reforms, policy changes, and the positive outlook could attract foreign investors, especially when global liquidity is flowing back into emerging markets. With that out of the way, let’s quickly go over some of the winners and losers from the budget announcements:

Winners in the 2024 Budget

1. Agriculture Sector:

• Investments in Post-Harvest Activities: Increased funding for modern storage and supply chains.

• Dairy and Fisheries: Specific programs aimed at development indicate a multi-faceted agricultural growth approach.

2. Housing and Middle Class:

• Housing Aid: Financial support for home ownership, reinforcing the government's commitment to 'housing for all'.

3. Tourism Sector:

• Development of Tourist Centers: A strategic move to enhance India's global tourism footprint.

• Funding Support: Interest-free loans for states can significantly boost local tourism infrastructure.

Losers in the 2024 Budget

1. Electric Vehicles:

• Subsidy Program: The EV industry was hoping for extension of the Faster Adoption and Manufacturing Electric (FAME) subsidy scheme.

• The government, however, reduced the budget allocation for the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle (FAME) scheme by nearly 44%.

• This non-extension of the existing subsidy program could slow the momentum of EV adoption.

2. Disinvestment Target:

• The government's divestment plans have fallen short for the fifth consecutive year. It has only raised Rs 10,051.73 crore this financial year so far from divestments, mainly through Central Public Sector Enterprises (CPSEs), IPOs, and Offer For Sales.

• The budget lowered the divestment target for FY24 to Rs 30,000 crore from Rs 51,000 crore and set the target for FY25 at Rs 50,000 crore. The reduction in target for divestments reflects challenges in high-value stake sales, which could also impact the government's revenue generation strategy.

3. Jewellery Import Duty:

• To keep the industry competitive on a global scale, the Gem and Jewellery Export Promotion Council (GJEPC) has requested the government to reduce import duties on gold and cut and polished diamonds.

• The industry relies heavily on imports and maintaining a high tax rate could impede industry growth and consumer affordability.

Additional Budget 2024 Highlights

• Income Tax Rates: No changes, maintaining consistency for taxpayers.
• Tax Demand Cases: Dropping old and petty tax demands, some dating back to 1962.
• Housing Scheme: Announcement of a new scheme for those living or renting in chawls and slums.
• Tourist Hubs and LTA Benefits: Potential benefits for employees claiming Leave Travel Allowance.

In Conclusion

The 2024 Interim Budget appears to have struck a positive chord in the market.

While not many investors would have noticed, the Finance Minister proposed an 11.11% hike in the capex outlay for FY25. She said that the provision for FY25 capital expenditure will be raised by 11.11% to Rs 11.11 lakh crore.

For some traders and investors, it's a moment to be cherished as many believe that seeing the time 11:11 on a clock is a sign of good luck.

We will have to wait and watch on how these planned expenditures, reforms, and changes pan out in the coming year.

In conclusion, investing is a roller-coaster ride. Ups and downs are part of the experience. And no one knows with 100% certainty when and for how long the market moves from the above changes will come.

With elections in the coming months, there was surely a lack of big announcements in the Budget.

Despite that, the government did a pretty good job in addressing concerns about many industries and also not going overboard in its commitments.

For more budget insights, head over to #BeyondTheBudget by clicking here.

Sources: Kotak Securities, Interim Budget 2024, Economic Times, Moneycontrol

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.