How will share market react to Union Budget 2025? Will Finance Minister Nirmala Sitharman take those steps that may put the BSE and NSE on an escalator and push the Sensex and Nifty 50 to a new height? What are the budget expectations of Dalal Street?
The impact of the Union budget on the share market can be understood by recalling what happened when then Finance Minister Manmohan Singh presented his maiden budget in 1991.
He took bold steps to liberalise the Indian economy, including slashing tariffs on many goods. The market was set on fire and it soared immediately.
Also Read: Union Budget 2025: Rs 10 Lakh Income May Soon Be Tax-Free, New Slab at 25% Expected
Similarly, then Finance Minister P Chidambaram cut taxes on many items in the Union budget of 1997, it was considered the second phase of liberalisation. It was received well by the share market.
Wil Long-Term Capital Gains Tax Go Up?
As Finance Minister Nirmala Sitharaman last year increased the long-term capital gains tax on holdings sold after one year from 10% to 12.5% last year, the share market players do not expect another hike this year as well.
However, skeptics do not rule out another increase this year considering the financial constraints she may have.
Dividend Tax
The taxes on profits made from selling stocks or dividends received from companies directly impact the share market.
While lower taxes on profits encourage people to invest more in the stock market, higher taxes on capital gains and dividends could discourage investment.
It may negatively affect the stock market.
Mutual Funds, Bonds
Similarly, any announcement that may impact mutual funds and bonds will affect the share market directly.
If Nirmala Sitharaman announces measures that make investing in mutual funds more attractive, the share prices may soar.
However,there are other factors too that may have their own effects on the share market.
Will Nirmala Sitharman Increase Income Tax?
All eyes are sent on Income Tax provisions as the CII, other business bodies and almost all trade unions have advised the Finace Minister to give relief to taxpayers.
If the Union Budget 2025 gives any kind of relief like an increase in standard deduction, slashing tax rates, reducing tax slabs or more concessions for small investment, the taxpayers will have disposable income, that may push consumption.
This may increase the GDP growth rate and boost the Indian economy. It will benefit the share market and share prices may go up.
Corporate Tax, GST Rationalisation
Business houses of almost all sectors have pleaded for a tax cut, demanded concessions in other forms
Business houses of almost all sectors have pleaded for a tax cut, demanded concessions in other forms and asked for rationalisation of GST rates.
Any step in this direction may boost the sentiment and the Sensex and Nifty to soar.
Will Nirmala Sitharaman Slash Tariffs?
All eyes are set on Nirmala Sitharaman expecting a tariff cut on many items, including those related to capital expenditure.
If she obliges, it will be a big advantage for the industry and business houses as it may help increase capital expenditure and also reduce the cost of many products.
Also Read: Union Budget 2025: Will Nirmala Sitharaman Replace Income Tax Act With Direct Tax Code?
However, considering the fact that it may put pressure on the rupee, which is already under duress and breached the level of 86 against US Dollar, the capital market will be more cautious.
Will FinMin Increase Allocation For Agriculture?
Nirmala Sitharaman is most likely to increase the allocation for the agriculture sector.
If it happens, the overall sentiment will improve because it will increase the productivity and output of products like pulses, oilseeds and cash crops.
Increased output will reduce the food prices that have soared high in recent times, increasing inflation and reducing the growth rate. Naturally, it will push the share indices high.
Will Sitharaman Limit Fiscal Deficit?
Government has already announced to limit the fiscal defict to 4.5% for the FY 2025-26.
A fiscal deficit occurs when a government’s total expenditures exceed its income, excluding borrowings.
If the fiscal deficit is increased, the government will have to borrow more money, and it can increase inflation and interest rates, affecting businesses negatively.
Also Read:Union Budget 2025: Will Nirmala Sitharaman Simplify GST, Increase MNREGA Wages?
If Nirmala Sitharman manages to control the fiscal deficit as promised, the government will borrow less, it will have to spend less on interest payments and this will boost the economy. It will be a sign of sound financial management, and can positively impact the stock market.
Share Market Under Pressure
The share market is already under pressure and it has lost miserably since the beginning of the year 2025.
The BSE and the NSE came under immense pressure after the Foreign Portfolio Investors (FPI) sold domestic equities worth Rs. 4,285 crore in just the first three trading sessions of the new year.
Besides, the higher yield of the US Treasury bonds also impacted the share market. The yield on US 30-year bonds climbed to 4.85%, the highest rate since late 2023.
As the US Treasury market is gearing up to issue fresh government debt for $119 billion, the yield on 30-year US bonds climbed to 4.85%, the highest rate since late 2023.
Why the US-based FPIs working in India would not exploit this situation and sell their portfolios?
