Budget 2024: How Will It Affect Investment Climate, What Should Investors Do?

As the Budget 2024 announcements near, retail investors are on edge, speculating how the forthcoming fiscal changes will influence the investment climate. Recently the Nifty trading reached record high levels, traders in such a scenario would be closely tracking the market ahead of the Budget 2024 presentation.

Finance Minister Nirmala Sitharaman will present the Union Budget 2024 on July 23.

Also Read: Budget 2024: Changes Under Tax Benefits for Homeownership Over The Years And What Do Homeowners Want?

Investors wonder, how will the upcoming budget influence overall market sentiment and economic outlook for the coming year. “The recently concluded Lok Sabha elections didn't come on the expected lines of the ruling party. Therefore, I see a tilt toward populism, especially considering the upcoming state elections this year which becomes a crucial battleground to balance the political power equation,” says Sumit Duseja, CFA (Co-Founder & CEO, Truemind Capital).

As per some media reports, historically, Nifty has moved within a 4 per cent range on Budget announcement day.

“Markets have remained resilient in the run-up to the budget and there are both great expectations as well as justified fears from various pockets of the industry,” states Naresh Bulchandani, CFA, CAIA – Head of Products & Advisory at Merisis Wealth. He further says that “with various state governments starting to announce various loan waiver schemes as well as other freebies to attract and retain voters, this will definitely have a bearing on the nature of the budget that will be tabled in the coming week.”

Duseja opines that the weightage of infrastructure capex spent would continue to stay at a higher level. “Overall a balanced budget with a focus on boosting the demand will be positive for the markets as well as for the economy,” he states.

Should investors be particularly watchful for any specific policies or announcements in the budget speech?

“The fiscal deficit numbers and its expected trajectory over the years would be important to watch,” Duseja comments. This would help investors to understand the financial stability of the economy and its impact on growth.

Bulchandani notes that much of the recent year's growth came from the revival in capital expenditure due to both government spending and the resumption of corporate capex. “This is likely to continue in the coming budget with high allocations expected towards critical sectors such as roads, railways, power & transmission, energy transition, and green energy,” he states.

Investment-related sectors could be the key beneficiaries of the upcoming Budget such as capital goods, manufacturing, defence, railways, and infrastructure so that they continue to perform well over the next few years.

“There are expectations from certain corners that the government is likely to give a boost to consumption which has been lagging for the past few years via rejigging of direct taxes for the lower and middle class. Also, high expectations are running for the expansion of existing social schemes as well as the introduction of new universal income schemes to particularly boost rural incomes,” Bulchandani notes.

In the government’s attempt to boost consumption, key beneficiaries would include sectors focused on this theme such as FMCG, Consumer Durables, Footwear, etc.

Rejig of Capital Gains, Taxes Would Impact Investment Climate

According to Bulchandani, ‘promoters, founders, and other company insiders have sold more than $20 bn of stock in the equity markets largely due to the buoyant capital markets over the past 2 years.' “The supply from insiders is likely to get larger in the coming years as they take advantage of the strong inflows from households for Indian equities. Hence, there is a likelihood of rejigging capital gains by the government to benefit from this secular trend,” he adds.

Duseja highlights that ‘no new taxes on the stock market transactions will be positive news for the market’. “Any relaxation on the direct or indirect taxes that has the potential to boost demand will be welcomed by the investors,” he states.

“We also expect the government to continue with its trend of plugging tax arbitrage loopholes, and certain investment vehicles such as arbitrage funds being utilised by HNIs/UHNIs to reduce their tax outgo are likely to be targeted in the coming budget,” says Bulchandani.

Investors expect the finance ministry to present a balanced budget, “with more focus on social expenditure to help alleviate the stress that rural households have been facing,” Bulchandani concludes.

To Keep Calm or Be The Game, What should investors do?

Investors should avoid speculation around any event. “The best strategy to deal with market volatility is to stick to your asset allocation plan that will ensure compounding over the long term,” Duseja advises.

According to Bulchandani, “Excessive euphoria or pessimism in light of possible winners and losers amongst sectors/industries impacted by budget announcements should be kept at bay since corporates usually adjust their business strategies in light of these.”

“While there is merit in taking tactical calls to benefit from such announcements, it is best to consider these in the ‘satellite’ portion of the portfolio while keeping the ‘core’ portion untouched,” Bulchandani advises.

Should you adjust your profile in view of the Budget announcements?

Bulchandani says that it makes sense for investors to review their portfolios during important events like the annual Budget and consider the risks emanating from their portfolio from the announcements.

“However, they should be wary of making weighty changes to their asset allocation to avoid unwittingly adding vulnerabilities to their portfolio, adversely impacting the achievement of their long-term financial goals,” he states.

Common mistakes investors should avoid:

Duseja says that the most common mistake investors should avoid is investing after the news impact is reflected in the stock prices. “Most of the time, the prices of stocks after the news fully discount the upside potential and therefore are highly sensitive to any unexpected negative news that could lead to losses,” he highlights.