Union Budget 2024 | Market seeks higher capex, boost to rural demand, relief in cap gains tax

In the fiscal year 2023-24, the central government’s fiscal deficit is expected to be around 5.9 percent of GDP. This shows a marked improvement in government finances

With markets kissing new highs, it is no surprise that there is a lot of expectation from the Union Budget, though it will be a vote-on-account because of the general elections.

The government's sustained focus on increasing capex to improve infrastructure has fuelled a rally in capital goods and PSU stocks, driving the Nifty CPSE index up over 80 percent in the past year. This has generated massive investor wealth and firmed up the bullish undertone in the markets.

The Street is also looking out for some measures to boost the rural economy to counter the K-shaped recovery from the pandemic blues. FMCG companies derive 20-35 percent of sales from rural India and, high inflationary conditions have led to a slump in their volumes. Any stimulus to revive rural demand will be well-received by the market.

Also read: Budget 2024 Expectations LIVE: Notable behind interim budget FY25, key projections and more

Here are four things that the market would like to hear from the finance minister on February 1:

Greater thrust on capex

Most fund managers believe that the budget should emphasise significantly on capital expenditure. Public capex can, in turn, propel private capex, which has remained subdued, to join the party, they hope.

"Investing in capital projects can be likened to buying a shop for future income generation rather than spending on immediate, ephemeral needs," Anirudh Garg, partner and fund manager at INVAsset PMS, told Moneycontrol. He advocates for at least a 20 percent increase in capital spending, from Rs 10 lakh crore announced last time.

On the back of increased capex spend, fund managers believe financial services, PSU, capital goods, and manufacturing to be dominant themes in 2024.

Schemes to boost rural economy

Kedar Kadam, director of listed investments at Waterfield Advisors, noted that the past interim budgets of 2004, 2014, and 2019, included noteworthy policy announcements like the extension of the subsidised food scheme, Kisaan Credit Cards, One Rank-One Pension, a reprieve for the auto sector, and Kisaan Sammaan.

Also read: Daily Voice | Setup for capital goods companies quite optimistic; may see revival in consumption, says this expert

"In this interim budget, some existing popular schemes could see expansion/extra resources to boost implementation rates. These may include Housing for all, health insurance, etc. Farmer's cash transfer scheme may also see an increase," he said.

Check 0n fiscal deficit

The market wants the government to spend, but it also wants it to keep a close eye on its fiscal deficit. ICRA expects the fiscal deficit target for FY25 to be set at 5.3 percent of GDP, aligning with the midpoint between the anticipated 6 percent for FY24 and the medium-term target of sub-4.5 percent by FY26.

Also read: Understanding the Union Budget 2024: A beginner’s guide

If the government deficit is higher, it will have to either increase taxes or increase borrowing. Here, the tax buoyancy seen in goods and services tax (GST) collections offers considerable comfort to the government.

The average monthly gross GST collection of Rs 1.66 lakh crore in the first nine months of this fiscal represents a 12 percent increase compared to the Rs 1.49 lakh crore average recorded in the corresponding period of FY23.

Relief in LTCG and STT

Every time the budget day comes, expectations on this long-standing demand resurface. Relief in the Long-Term Capital Gains (LTCG) tax will encourage more investor participation in the stock markets. However, the government has not indicated any action on this so far.

Also read: Budget 2024: Resolve NRIs' PAN-Aadhaar tangle, raise tax rebate limit and simplify tax processes, say tax experts

The government levies a 10 percent tax on cumulative profits exceeding Rs 1 lakh in a year if the security is held for more than a year. For securities held for less than a year, short-term capital gains tax is levied at the rate of 15 percent.

The Street also seeks a breather in the form of either the complete removal of security transaction tax (STT) or a reduction for the cash market. In March 2023, STT was hiked 25 percent for the F&O segment.