What stock markets want to hear from the FM. And what they do not

Moneycontrol glanced through the Budget notes of leading brokerages and tried to figure what is that the market expects.

It is that time of the year when stock market participants put on their macroeconomic hats and try to second guess the finance minister. Never mind the fact that nine out of 10 won’t be able to recall any of the key announcements in a Budget one month later. For the time being though, terms like liquidity, price earnings multiples, order wins need to be kept aside and the conversation shifts to more high sounding terms like fiscal consolidation, tax revenues, tax to GDP ratio and stuff.

Moneycontrol glanced through the Budget notes of leading brokerages and tried to figure what is that the market expects to hear from Finance Minister Nirmala Sitharaman when she presents the Vote-on-Account in Parliament.

1. Continued capex push going into FY25

Why: Private sector is not investing enough in capacity expansion. So, it is on the government to keep the wheels of the economy spinning. Government spending on infrastructure will benefit companies in the capital goods, engineering, steel and cement sectors, help create jobs, and in turn boost consumption.  Besides, it will also send the stock prices of the beneficiary companies soaring.

Will it come through: Market is not so sure if there will be an aggressive capex push. That is because the government is also trying to hit its fiscal deficit target of 5.4 percent in FY25 and send a signal that it is committed to managing its finances well to ensure sustainable growth and stability. Stepping up capex spend could make it difficult to achieve that target

2. Higher threshold for personal income tax, rebates

Why: Consumption has been flagging as inflation has been eating into disposable income. Some tax relief has the potential to boost disposable income among the middle-class, lift sentiment, and thereby boost discretionary consumption.. Besides, a good measure to keep voters happy ahead of the elections.

Will it come through: Going by the recent state poll results, the government appears to be under no pressure to woo the middle class right away. But there is a precedent. In the 2019 interim budget, the maximum limit of the tax rebate was increased to Rs 12500 from Rs 2500. TDS limit on post office savings and bank deposits was hiked from Rs 10000 to Rs 40000.

3. Increased allocation to rural schemes

Why: Rural is still trying to shake off the after effects of the COVID slowdown. This can be seen in weak sales of two-wheelers, consumer durables and fast moving consuming goods.

Will it come through: Most likely yes. While demand for luxury and discretionary goods has been strong, sustainable economic growth requires participation from all segments of consumers. Besides there is the election coming up

What the market does not want to hear

4. Increase in securities transaction tax

Why: It will hurt the margins of day-traders, affect liquidity and even dampen market sentiment

Will it come through: Unlikely the government will want to risk antagonising the stock market constituency when the benefits are not big enough in the overall scheme of things

5. Hike in long term capital gains tax

Why: Markets have sold off in the past whenever  long term capital gains tax has been tweaked.

Will it come through: Not immediately, but most market participants expect it in the July Budget.