What the markets liked and did not in Interim Budget

Markets heaved a sigh of relief after the Budget did not tinker with long-term/short-term capital gains tax (LTCG, STCG) or the Securities Transaction Tax (STT)

Equity benchmarks the Sensex and Nifty ended with modest losses on February 1 after Finance Minister Nirmala Sitharaman tabled the Interim Budget 2024-25 which steered clear of big-bang announcements ahead of the General Elections.

She did, however, announce some sector-specific initiatives while sticking to the government’s fiscal consolidation roadmap.

Here’s what the markets liked and did not like in the Union Budget:

The Good

Fiscal Rectitude

The Budget lowered the fiscal deficit target to 5.1 percent of GDP for FY25, from 5.8 percent in FY24.

Similarly, the government’s gross market borrowing will be reduced to Rs 14.13 lakh crore in 2024-25 from Rs 15.43 lakh crore this fiscal year.

No Populist Measures

Though the Lok Sabha elections are due by May, the Modi government did not take the populist path measures, as done by a few Opposition-ruled state governments recently.

No hike in STT, LTCG

Markets heaved a sigh of relief after the Budget did not tinker with long-term/short-term capital gains tax (LTCG, STCG) or the Securities Transaction Tax (STT).

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The Not So Good

Modest Rise in Capex Outlay

Sitharaman raised the FY25 capital expenditure allocation by 11.1 percent to Rs 11.11 lakh crore, which was below market expectations.

The capex hike in the last budget was at a massive 37.4 percent.

Engineering major L&T, considered a proxy for the country’s infrastructure development expenditure, was the top Sensex loser, down 2.3 percent.

Catch all the Budget updates on our LIVE blogCut in Disinvestment Target

The Union Budget scaled down the disinvestment revenue target in the revised estimates to Rs 30,000 crore from Rs 51,000 crore for the current financial year. A significant portion of the projected revenue was missed because no strategic sale transaction came through due to complications and issues with state governments.

India’s track record in meeting the budgeted disinvestment target has been dismal. The Center has missed its divestment target for the fifth year in a row.

The disinvestment target for FY25 has been set at Rs 50,000 crore.

Missing Consumption Boost

Many market participants were hoping that the FM will give a boost to domestic consumption – the engine of India’s growth – to offset the weakness in some pockets, especially the rural sector.

Growth in Private Final Consumption Expenditure (PFCE), which measures the total expenditure incurred by Indian consumers in their personal capacity, from buying cars and TVs to items of daily usage, has almost halved to 3.13 percent in Q2 FY24 from 5.97 per cent in Q1.

However, with no income tax relief for the middle class or any big-bang announcement for the farm sector, the market was left disappointed.

The previous Interim Budget in 2019 had announced allocation for the PM-KISAN scheme.