Budget 2025: What Stock Market Investors Should Expect – Key Trends to Watch

The Union Budget 2025 is set to be unveiled by Finance Minister Nirmala Sitharaman on February 1. As always, the announcement of the national budget holds immense significance for stock market investors. It influences market trends, sector performances, and investor sentiments across the country. With a flurry of speculations circulating ahead of this crucial event, many investors are closely eyeing potential changes in tax policies, fiscal management, and infrastructure spending.

As we gear up for the 2025 Union Budget, here are five key things stock market investors are expecting and the potential impact these measures could have on the market.

1. Capital Gains Tax Tweaks: Will Investors Get Relief?

Reducing capital gains tax has always been a top ask for stock market investors. However, there is growing speculation that Finance Minister Sitharaman may not introduce a major reduction in capital gains tax in this year’s budget.

Pranav Haridasan, Managing Director & CEO of Axis Securities, believes that while there may be efforts to simplify the capital gains tax structure and encourage broader market participation, a significant cut seems unlikely. Similarly, experts like Shripal Shah from Kotak Securities suggest that although a reduction or moderation in capital gains tax could attract foreign investors and improve market dynamics, the government's focus on revenue generation might outweigh tax cuts.

Investor Insight: If capital gains taxes are indeed tweaked, expect improved market sentiment and possibly increased domestic and foreign investments. However, major reductions seem improbable this year.

2. Income Tax Cuts: Will Disposable Income Rise?

There’s strong speculation that the government may look to reduce income tax rates in Budget 2025, especially for individuals with annual incomes ranging from ₹10 lakh to ₹20 lakh. Such a cut could provide a much-needed boost to consumption, helping to kickstart economic growth amid sluggish demand in urban areas.

Many experts, including those at EY India, suggest raising the basic exemption limit from ₹3 lakh to ₹5 lakh. This would free up more disposable income for taxpayers, encouraging spending and boosting the economy. Global brokerages like Citi and Jefferies also see potential in such tax relief as a way to stimulate demand.

Investor Insight: A tax cut in income tax would likely benefit sectors reliant on consumer spending, such as retail, real estate, and automobiles.

3. Fiscal Deficit Target: A Delicate Balancing Act

One of the most anticipated aspects of the budget is the government’s fiscal deficit target. A higher-than-expected fiscal deficit could raise concerns about inflation and undermine investor confidence. On the other hand, a balanced and prudent fiscal approach could result in positive market sentiment.

Puneet Singhania, Director at Master Trust Group, suggests that a fiscal deficit target of around 4.5% of GDP would be ideal, signaling effective fiscal management and promoting growth in infrastructure and social sectors.

Investor Insight: A prudent fiscal deficit target could create a conducive environment for capital markets, providing stability and encouraging investment across sectors.

4. Capex Increase: Key for Infrastructure and Growth

Given the challenges faced by the Indian economy in the first half of FY25, including sluggish corporate earnings and weak consumption, there is an expectation that the government will ramp up capital expenditure (capex) in the upcoming budget.

Analysts predict that a 10% rise in capex spending for FY26 could have a positive impact on infrastructure-heavy sectors like defence, railways, and construction. A focus on increasing capex would indicate a commitment to long-term economic growth and infrastructure development, which could boost investor sentiment.

However, some experts, like Pranav Haridasan from Axis Securities, believe that despite calls for increased capital expenditure, the government is unlikely to deviate from its focus on balancing the fiscal situation.

Investor Insight: A strong emphasis on infrastructure and capex could drive growth in key sectors, leading to greater investor optimism in the markets.

5. Customs Duty on Gold: A Potential Hike?

India’s gold imports saw a significant surge in 2024, prompting discussions on whether the government might increase the customs duty on gold in Budget 2025. Last year, the reduction in gold import duties led to higher imports, which widened the trade deficit and fueled concerns over rising consumption.

Experts, including Sugandha Sachdeva from SS WealthStreet, suggest that the government may increase the customs duty on gold imports to curb this trend. With the government having spent $47 billion on gold imports in 2024, there is a growing belief that raising the import duty could help manage this rising expenditure.

Investor Insight: A hike in gold import duties could impact the gold market, potentially leading to a shift in investor preferences toward other investment avenues like equities.

Final Thoughts: What Does This Mean for Investors?

With the Union Budget 2025 just around the corner, stock market investors are hoping for a combination of tax reforms, fiscal discipline, and enhanced capital expenditure that could stimulate growth and bolster market sentiment. While some of the expectations may be overly optimistic, even modest adjustments in key areas like tax policy and fiscal targets could go a long way in improving investor confidence.

Reference from:-https://www.livemint.com/market/stock-market-news/budget-2025-from-tax-tweaks-to-capex-hike-here-are-5-things-stock-market-investors-eye-in-upcoming-union-budget-11738148620066.html