- Date : 29/01/2024
- Read: 3 mins
Find out how prospective interim budget declarations can impact the stock market in the coming days as we look at the industries that can benefit.
The tabling of the Union Budget is a defining event of the year for the stock market. It often results in a response in the market sentiments. The stock market is seeing a spell of correction after a brief rally towards the end of 2023 and early January 2024. The big question is: Will the market see further corrections after the interim budget, or will the budget push it towards another rally?
Don’t be misguided by the fact that an interim budget is a bare minimum budget. The last two interim budgets of 2014 and 2019 led to a strong and positive impact on the stock market within three months of its announcement.
Sensex rose by 7 and 19% in the three months after the interim budgets of 2014 and 2019, respectively
The government aims to reduce fiscal deficit to 4.5% by FY26
The government has increased the capex budget by 30% CAGR over three years and is presently 3.3% of GDP
Build Up To The Budget
In the build-up to the interim budget, the benchmark Nifty50 rose to an all-time high of 22,124. However, since then, the market has undergone a correction of nearly 900 points by Republic Day eve. A spell of volatility is expected to remain in the market at least till the budget day.
Interim budgets tend to be lukewarm in terms of policy changes, with the post-election budget carrying that responsibility. The interim budget can act as a prelude to the changes that the union budget will bring in. However, that will be confirmed only by the election results. Nevertheless, even minor tweaks in the policies can have a cascading effect on the citizens and consequently on industries.
Post Budget Impact
The interim budget is expected to address the fiscal deficit and encourage production and infrastructure. Capital expenditure allocations may see a rise in manufacturing, railway and defence segments, which will influence the indices.
Similarly, any allocations to welfare programmes like MNREGA and PM Kisan can boost the rural economy. This can have a positive impact on stocks as diverse as FMCG, agriculture-related, tractors and two-wheelers, beverages, etc.
Any renewed focus on affordable housing can see a positive impact in the real estate sector. Besides, sustainability-related measures that aim to reduce dependency on fossil fuels will boost the demand for EV, solar and wind energy, and biofuel(omit)-related stocks.
With the government unlikely to resort to populist measures, a focus on infrastructure seems to be on the cards. Considering that previous interim budgets have led to stock rallies, we should continue a similar reaction in the days following the interim budget 2024.
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