The Finance Minister presents the country’s financial plan each year, known as the Union Budget. It shows how much money the country expects to earn and how it plans to spend that money on different areas to help the country grow.
Finance Minister Nirmala Sitharaman is on track to release the Union Budget for the current year on 1st February 2025. Roads, rail, airports, and water infrastructure are expected to get greater focus in the current budget. In this blog, let us understand how will be the stock market on Budget Day.
Which Sectors will be in focus?
The 2025 Budget aims to help India grow by improving roads and safety and becoming more independent. Further, let us see how the stock market is expected to react to Budget 2025 and what are the key sectors to be focused on in the coming budget:
1. Railways: The 2025 Budget can potentially give special attention to Indian Railways since they have already used 76% of their big spending money by the middle of the year. The government plans to spend Rs. 1.8 lakh crore to make trains safer. Also, they are aiming to add new and better trains like Vande Bharat and Namo Bharat 2.0 sleeper trains.
2. Defence: The defence sector in the coming budget is expected to receive Rs. 1.9 lakh crore for capital expenditure, up from Rs. 1.72 lakh crore in the previous budget. A total defence allocation of Rs. 6.22 lakh crore was made in the previous budget, representing a 4.79% yearly increase. This year, the focus will be on mobility vehicles and naval infrastructure mobilisation. India aims to reduce its 35% dependence on defence equipment imports by promoting domestic manufacturing and self-reliance. So this sector is expected to be in focus.
3. Renewable energy: India has a target of reaching 500 GW of renewable capacity by 2030. In the previous budget, the Ministry of New and Renewable Energy allocated around Rs. 19,100 crore, reflecting a 143% increase compared to the revised estimate of the last year. Also, considering PM Surya Ghar Muft Bijli Yojana, introduced in February 2024 and focuses on the government of 1 crore roof solar projects, the budget could extensively focus on the renewable energy segment.
4. Infrastructure: In the previous budget, a total allocation of Rs. 11.11 lakh crore was made towards infrastructure, marking a 17.1% yearly growth. Key areas like roads and highways were prioritised under the “Vikist Bharat” vision, emphasising their significance for a developing nation. Because of this increased investment, it is expected that there will be a 12-13% rise in capital expenditure in Budget 2025, emphasising the infrastructure sector’s crucial role in economic growth.
5. Healthcare and Pharma: In the 2025 Budget, the pharmaceutical and healthcare sectors are seeking a 2.5-3% budget increase to strengthen healthcare infrastructure, with a specific focus on improving medical facilities in rural and semi-urban areas. The goal is to bridge healthcare access gaps and enhance medical services across India through a higher allocation of funding compared to the previous year.
Also Read: Top 10 Indian Companies that shaped India’s Economy
How will the stock market react?
The stock market will react to the 2025 Budget based on what the government decides. When a budget is announced, the market can become volatile. Some sectors might be happy if they receive good news or significant investment. Other sectors may be disappointed if they get lower allocation or fewer benefits. These changes can make stock prices go up or down, depending on how different industries are treated in the budget plan.
Sectors mentioned earlier, such as infrastructure, railways, and renewable energy, will see stock market movements based on budget allocations. If these sectors receive funding as per investor expectations, their stocks will go up. However, if the allocations do not meet investor expectations, their stock prices are likely to decline.
Companies in road construction, rail modernisation, and renewable energy projects could experience significant stock price changes. Announcements related to PM Surya Ghar Muft Bijli Yojana or Vande Bharat 2.0 railway sleeper train initiatives might directly impact the stock performance of companies aligned with these projects.
Example
Considering a few examples from the previous budget. In the Budget 2024, the Finance Minister raised the long-term capital gains tax from 10% to 12.5% and the short-term capital gains tax from 15% to 20% for financial assets. Additionally, the Securities Transaction Tax on derivatives has been increased to 0.02%. Eventually, with increased taxes, profits were impacted, and investors preferred to switch to different instruments for better returns and stability. So, Sensex declined by 1,200 points.
Similarly, after the previous budget announcement, railway stocks fell due to a lower-than-expected capital expenditure allocation. The budget allocated Rs. 2.55 lakh crore for railways, which was only a 5% rise from the previous year’s Rs. 2.4 lakh crore. Investors had anticipated a 10% increase, leading to disappointment and a negative market reaction that caused railway stock prices to decline by around 6% to 8%.
Highlights Of Budget 2024: In Nirmala Sitharaman budget 2024: What it means for you
What can retail investors do?
Retail investors should look beyond short-term market volatility and focus on long-term economic growth. While budget-related stock market reactions can be unpredictable, infrastructure projects that take years to develop can significantly boost the economy.
By creating a diversified investment portfolio with a long-term perspective, investors can manage short-term fluctuations and potentially benefit from sectors receiving budget support.
Retail investors should recognise that budget announcements are complex and can significantly impact different sectors. To make informed investment decisions, it is crucial to:
- Follow credible news sources for up-to-date budget analysis
- Seek expert insights to understand market implications
- Consult a financial advisor or portfolio manager for personalised guidance
- Develop a comprehensive understanding of how budget measures might influence market trends
This approach helps investors navigate the nuanced financial landscape and make more strategic investment choices.
Also Read: Your guide to prepare for Budget Day!
Conclusion
The 2025 Budget aims to shape India’s economy through smart investments. Retail investors should focus on understanding budget priorities instead of worrying about short-term market changes. By staying informed and thinking long-term, investors can find growth opportunities. The budget reveals important plans for economic development. Patient and strategic investment can help navigate the financial landscape effectively.
