Market participants and investors will be closely tracking Finance Minister Nirmala Sitharaman's Budget speech on February 1, hoping for measures that spur investment and growth, at a time when the economy is facing a domestic demand slowdown, and global trade headwinds.
The economic growth and corporate earnings are under duress, and experts believe positive triggers around corporate tax, wider scope of PLI schemes, or further infrastructure push - which in turn may boost several sectors - could play a big role in uplifting sentiment and triggering a rally.
The benchmark Sensex and Nifty 50 are already down nearly 10% from their record highs seen in September last year. For Nifty, January also marked the fourth consecutive month of decline, its longest such streak since 2001, adding to the extended correction.
“Union Budget 2025 should ideally continue the trajectory of simplifying and rationalising taxes on capital market products. For instance, long-term capital gains tax was rationalised at 12.5% in Budget 2024 and can be reduced further by 50–200 basis points to benefit investors,” a recent note by Bajaj Broking said.
“Likewise, reducing Securities Transaction Tax (STT) and simplifying provisions for Alternative Investment Funds (AIFs) will foster institutional investments, enhance market liquidity, and encourage foreign portfolio participation. Continuing in the same vein, simplifying tax rules for financial instruments, such as bonds, stocks, and derivatives, as well as for FPIs, would remove complexities and enhance the market’s attractiveness,” the note added.
Here are five key potential decisions that could trigger a post-Budget rally in the stock market:
Corporate Tax Cut
Any reduction in corporate tax rate will bring cheer to India Inc, and the government could look at lowering the rate at a time when businesses are grappling with global as well as domestic headwinds. A lower tax rate could boost profitability, thereby attracting more investment and capex commitment. Sectors such as manufacturing and infrastructure, which are already high on government’s radar, would particularly benefit from such a move.
Focus on Infrastructure Development
Greater budgetary allocation, or policies to enhance infrastructure spending, especially for roadways, railways, urban development or renewable energy can also be a positive trigger. The impact will not be limited to these segments alone, and related sectors like cement, steel or construction could see a cascading effect.
Incentive for Green Energy, EVs
Green energy has been a huge focus area for the government, and several scrips within sectors such as auto and power among others could move northwards, should any measure be announced. The spillover benefit could also be visible in auto ancillaries and OEMs, too. Any announcement promoting renewable energy, green hydrogen, or incentives for electric vehicles (such as tax cuts or subsidies) could boost shares of companies in the clean energy and EV space. Renewable energy had seen a huge jump in FY25 budget allocation, reaching Rs 19,100 crore from Rs 7,848 crore in the previous year.
Boost to Make-in-India and PLI schemes
In a recent note, ICRA had highlighted that the government may increase allocation for the PLI scheme in FY26, with potential extensions to other labour-intensive sectors to boost domestic manufacturing and address the flow of credit. Any expansion or extension of PLI schemes for electronics, semiconductors, or pharma sector too could boost manufacturing and export-oriented plays. There is already an anticipation of PLI expansion, especially in upstream solar components like poly-silicon and wafers in the Budget.
Policy Support for Financial Sector, markets
Measures such as recapitalisation of PSU banks, tax incentives for individual investment in capital markets, or policies encouraging retail participation in stock markets could lead to an uptick in financial stocks. The 2024 budget had grabbed headlines with a surprise increase in taxes on both, long-term and short-term capital gains. Market participants will keep their fingers crossed, hoping the Finance Minister does not spring any such surprise this year. A reduction in the tax rates would go a long way in triggering an rally, though it remains to be seen how long it can sustain.
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