Budget 2024 Breakdown: Analysing the Stock Market’s Reaction to Union Budget 2024

Come July, all eyes were on the Budget to be tabled in the parliament. Each sector had a wishlist for the Finance Minister for the Budget 2024. And rightly so. The annual budget is the single most important policy outline. It impacts the economy, shapes interest rates, and charts a course for the stock market. With India's GDP projected to grow at 7% for FY 24-25, Budget 2024 was under immense scrutiny. Let's unpack the budget's highs and lows and try to decode its impact on the stock market.

Boosting Skills, Supporting MSMEs, and Transforming Agriculture

Budget 2024 hinged on four main themes: Skill Development and employment, MSMEs, Agricultural Innovation and Rural Development, and Taxes and Duties. With a strong commitment to combat unemployment, the government announced multiple schemes for the youth. These provide one-month wages and offer incentives for EPFO contributions for first-time employees and employers. 

The government announced a comprehensive package consisting of five schemes aimed at generating employment, enhancing skills, and providing various opportunities for 4.1 crore youth over the next five years, with a central allocation of ₹2 lakh crore. Additionally, this year’s budget includes ₹1.48 lakh crore dedicated to education, employment, and skill development. To increase women's workforce participation, over ₹3 lakh crore are allocated to establish women hostels and create women-focused skilling programs.

Moving on to the second theme—MSMEs. The government made significant provisions for MSMEs in the budget. The sector is crucial to India's economic development. It includes 6 crore units employing over 11 crore people, contributing 30% to GDP and 50% to exports. However, only 14% of these MSMEs have access to credit. The new Credit Guarantee Scheme will offer term loans for machinery and equipment without collateral. Additionally, entrepreneurs who have repaid previous loans will see their loan limit increased from ₹10 lakh to ₹20 lakh under the Mudra loan scheme. 

However, the growth story would be incomplete without the primary sector, agriculture. The budget increased agricultural spending to ₹1.52 lakh crore and rural spending to ₹2.66 lakh crore. The plan includes enhancing agriculture research, releasing new crop varieties, and promoting natural farming. It aims to boost pulses and oilseed self-sufficiency. The budget also focussed on boosting digitization in the agricultural sector. To ensure better farm-to-market connectivity, better road connectivity in 25,000 villages was proposed under the Pradhan Mantri Gram Sadak Yojana.

The budget allocates ₹11.11 lakh crore for central infrastructure investment, with strong fiscal support and incentives for state and private sector contributions. It aims to transform cities through economic planning and redevelopment, with a focus on housing projects under PM Awas Yojana Urban 2.0, supported by ₹10 lakh crore in investments. 

The budget has proposed reducing the Basic Customs Duty (BCD) on mobile phones, mobile PCBs (Printed Circuit Boards), and mobile chargers to 15%, reflecting the maturing Indian mobile industry. Customs duties on gold and silver will decrease to 6% and on platinum to 6.4%. Additionally, customs duties on 25 critical minerals will be exempted, with the BCD lowered for two of these minerals. Also, to boost the start-up ecosystem, the government will abolish Angel Tax. 

Market Reactions to Budget: The Immediate Impact and Historical Trends

The Union Budget has always been a key driver for the stock market. Historical data shows that markets are extremely volatile on budget days. Indexes swing with each budget statement. Beneficiary stocks give a sharp up move whereas some counters see sharp decline based on what the budget brings. Historically, markets have reacted differently to each budget.

Investors can research and understand market reactions to fiscal policies on StockGro.

If we examine the market reaction to the budget, they have been a mixed bag. In the past 10 years, the BSE Sensex closed higher six times, while it settled in negative on four occasions. The Dalal Street notched its best Budget Day gain of 5% in 2021, while it registered its ten-year biggest loss of 2.43% in 2020.

Budget 2024

Following the Union Budget 2024 announcements, the government proposed higher LTCG,STCG and taxes in trading derivatives. Indian stock markets fell in a knee jerk reaction initially. NSE Nifty and BSE Sensex fell 1% each. Additionally, the Indian rupee dropped to a record low of 83.69 against the US dollar. Moreover, due to a chop in the custom, gold prices slipped by 5%.

However, in the second half, the indices recovered due to liquidity in the system. Overall, the reaction to the budget was neutral. The BSE Sensex closed negative 73.04 points(0.09%) percent at 80,429.04. The NSE Nifty closed marginally negative by 30.30 points(0.12%) at 24,479. 

Budget 2023

The share market gave mixed reactions to this Budget. The Hindenberg-Adani saga played a major damper, causing profit booking. The BSE Sensex rose by 158 points (0.27%) to 59,708. Meanwhile, the NSE Nifty 50 fell by 46 points (0.26%) to settle at 17,616.30, as profit-booking overshadowed initial optimism.

Budget 2022

The market gave a thumbs-up to this Budget. It was termed pro-growth by experts, propelling BSE Sensex and NSE Nifty to close 1.4% higher. The BSE Sensex climbed 848 points to 58,862, and the NSE Nifty 50 rose 237 points to 17,577. The indices hit intraday highs with the BSE Sensex reaching 59,032 and the NSE Nifty 50 touching 17,622.

Budget 2021

In 2021, the stock market registered its best performance in the past 20 years. The BSE Sensex rallied 2,300 points, or 5%, to close at 48,600, and the NSE Nifty surged 647 points, or 4.74%, to settle at 14,281. Investors cheered Union Budget 2021, which was termed as growth-oriented and balanced by market analysts. 

Budget 2020

Post the Union Budget 2020, the stock market witnessed the biggest fall on the Budget Day in the past 12 years. The BSE Sensex tumbled 988 points, or 2.43%, to close at 39,735, and the NSE Nifty50 declined 300 points, or 2.51%, to end at 11,662. The massive negative reaction was due to no major relief for the stock market.

Budget 2019

In 2019, two budgets were presented. The Interim Budget on February 1 maintained existing tax slabs, increased the defence budget, and provided benefits for low-income taxpayers and farmers. This boosted market sentiment. The BSE Sensex rose by 212 points, and the NSE Nifty 50 gained 62.7 points. On July 5, the full budget largely retained the proposals of the interim budget  proposals. However, it faced a negative market reaction due to concerns over higher taxes for HNIs, lack of fiscal deficit targets, and increased public shareholding. Consequently, the BSE Sensex fell by 394.67 points and the NSE Nifty 50 dropped by 135.60 points.

Taking a cue from the negative sentiments in the market, the then FM announced a significant cut in corporate tax rates. The market cheered the move. BSE Sensex soared 5.32% and NSE Nifty jumped 5.2% in a single trading session. This surge shows as a big bullish candle on technical charts which popularly came to be known as “Nirmala Candle” by the trading community.

Strategic Portfolio Adjustments Post-Budget 2024 

Ajay Lakhotia, founder & CEO of StockGro, offers key insights on adjusting your portfolio in light of Budget 2024. He states:

"The government's increased spending in Agriculture, Skill Development, Financial Inclusion, and Infrastructure, along with continued focus on Railways and Defense, presents key opportunities for investors. With Short Term Capital gain increased to 20%, it's prudent to reallocate capital with a long-term view on these sectors.

There is a short-term bullish outlook on Agri and Agri-Tech sectors, as well as Railway and Defense stocks. For longer-term investments, it is worth evaluating NBFCs and Banks that extend loans to MSMEs, as they stand to benefit from the budget's provisions.

Infrastructure and Engineering companies receiving government orders can also be potential long-term additions to portfolios. With the country hungry for better infrastructure, this sector, which provides employment to people at the bottom of the pyramid, is likely to see maximum growth in the next few years.

Overall, the budget's focus on economic growth, skill development, and support for key industries provides a roadmap for strategic investment decisions in the coming year."

Looking ahead

While the Budget does impact stock markets in the short term, but in the long term, markets eventually adjust to the volatility. Both BSE Sensex and NSE Nifty will rise in the long term if the economy is doing fine. Investors who invest through Index Funds need not necessarily change their investment strategy. However, those who actively manage their portfolios must track the government policy along with the macroeconomic conditions. They must make informed trading and investment decisions based on sectoral headwinds or tailwinds. Resources like StockGro provide best insights on becoming a successful investor and navigate future policy changes with ease. 

Disclaimer: This article has been produced on behalf of the brand by HT Brand Studio. The content is for information purposes only and does not constitute financial advice.