Is the interim Budget no 'big deal' for stock markets in India?

The impact of the Union Budget on the equity markets has reduced notably over the past few years, with the government undertaking most of the reforms outside the purview of the Budget, says Pranav Haridasan, MD and CEO, Axis Securities

Other than providing the fiscal position and economic conditions, the interim Budget is not expected to stir any deep reactions from the stock markets investors in India. Any tax concession related to investments in capital markets may, of course, create a favourable condition. However, the monetary policy decisions of the US Federal Reserve and Reserve Bank of India are likely to have a bigger influence on equities.

The US Federal Reserve will be announcing the monetary policy decision late night in India time as the Federal Open Market Committee (FOMC) meeting is currently underway. The RBI’s monetary policy committee (MPC) will meet on February 6-8, just a week after Finance Minister Nirmala Sitharaman presents the interim Budget on February 1.

The impact of the Union Budget on the equity markets has reduced notably over the past few years, with the government undertaking most of the reforms outside the purview of the Budget, says Pranav Haridasan, MD and CEO, Axis Securities. “Nonetheless, the market participants continue to view it as a critical catalyst stimulating the growth of the Indian economy and, thereby, the Indian market,” he adds.

However, since this is an interim Budget, Haridasan does not see significant announcements but believes it will retain the growth roadmap and reaffirm the government's commitment to long-term growth, with a continued focus on infrastructure development. “We expect key policy reforms, such as Atmanirbhar Bharat, Make in India, and the PLI scheme, to continue and receive further impetus in FY25. There may be an increased emphasis on power, utilities, and renewables. Railways, infrastructure, and capital goods companies are poised to remain in the spotlight with higher capex spending. Automobiles and FMCG are likely to get a boost from higher rural spending,” he elaborates.

As the general elections are likely to be in April-May, the interim Budget is only for a short term before the actual Budget is presented in July for financial year 2025.

A vote on account or interim Budget is a special constitutional provision, by which the government gets the Parliament’s vote to secure funds for essential expenditures for a part of the next financial year. The final Budget will be presented in July, when the new government is in place.  

Sonal Varma and Aurodeep Nandi, economists, Nomura, feel that precedent dictates that the interim budget will be largely a budget of ‘intent’, where the government outlines the contours of its fiscal strategy if it is voted back into power, without announcing new spending or revenue commitments. However, the government is well within its rights to break from precedent.

Also read: Govt's divestment plans likely to flop in FY24, once again

In a pre-election budget, they expect the government to balance politics and economics, while setting a lower fiscal deficit target of 5.3 percent of GDP. The government had set a fiscal deficit target of 5.9 percent of GDP for FY24 compared to 6.4 percent of GDP in FY23. Fiscal data from April-November suggest that the government should be able to meet its target. Stellar direct tax collections, higher dividends and expenditure consolidation are likely to offset fiscal drag from lower nominal GDP growth, revenue expenditure overshoot, and lower disinvestment and indirect taxes.

The government is unlikely to meet the divestment target of FY2024 for a fifth consecutive year. From April to November 2023, the government has mopped up only Rs 8,860 crore, which is merely 17.4 percent of the budgeted estimates of Rs 51,000 crore (Rs 510 billion) by end of March 2024.

As on January 11, the total receipts from divestments for the government was Rs 10,050 crore, shows data provided by the Department of Investment and Public Asset Management (Dipam). That includes sales of the government’s stake in Coal India, Rail Vikas Nigam, SJVN, Housing and Urban Development Corporation Ltd, IRCON International and Hindustan Aeronautics through the offer-for-sale (OFS) route. There was just a single listing of shares of a PSU company called Indian Renewables Energy Development Agency in which the government sold a 10 percent stake for Rs 860 crore, through the initial public offering (IPO) route.

According to Varma and Nandi, interim budget is important for two reasons. First, the government is in election mode, so there will be tacit targeting of its key constituents. Second, most opinion polls are predicting the current government will be back in power, so it is likely that the interim budget will be presented under the assumption of policy continuity after the elections.

“On a six-month rolling sum basis, revex growth has sharply fallen off from 21.5 percent year-on-year in Q3 2023 to -10.4 percent currently, while capex growth has moderated from 50.7 percent to less than 9 percent. We expect the government to save 0.2 percent of GDP, due to less-than-budgeted capex,” Varma and Nandi explain.


The ruling BJP has adopted a ‘GYAN’ strategy for the general elections—Gareeb (poor), Yuva (youth), Annadata (farmers) and Nari (women)—indicating the four key constituents that it is looking to target with its economic pitch.

Also read: Budget 2024: The long road to fiscal consolidation

Pranjal Bhandari and Ayushi Chaudhary, economists, HSBC, expect a normalisation in current expenditure post elections, and unchanged and elevated capex momentum. This is likely to lead to a fiscal deficit of 5.3 percent in FY25, signalling that the government is committed to its fiscal consolidation path.

“All of this affects RBI decisions. High GDP growth so far in FY24, supported by capex, has influenced the RBI's tight monetary policy stance. But as the 'adjusted' fiscal impulse turns mildly negative in FY25, and food disinflation continues, we believe the RBI will turn less hawkish as the year progresses,” add Bhandari and Chaudhary.  They expect the RBI to change its stance to neutral, and cut the repo rate by 50 basis points in mid-2024, taking it to 6 percent.

Meanwhile, the BSE Sensex and Nifty gained around 1 percent during day trade on Thursday after staying volatile this week.