Budget 2025: From tax tweaks to capex hike – here are 5 things stock market investors eye in upcoming Union Budget | Stock Market News

Budget 2025: Finance Minister Nirmala Sitharaman is set to unveil the Union Budget 2025 this week on February 1. Like always, this event will be a key one for stock market investors as it influences various sectors and defines market trends.

Ahead of the Budget, the market is abuzz with various speculations from cut in long-term capital gains tax to rationalisation of income tax slabs and possible fiscal deficit targets.

Top 5 Budget expectations of stock market investors

Here are key things to watch out for in the upcoming Union Budget and the factors that could influence the market’s direction.

1. Tweaks in capital gains tax structure

Reducing capital gains tax is a key ask of many stock market investors in almost every Budget. While most experts believe that such a reduction could boost sentiments on Dalal Street, it is improbable it would materialise in Budget 2025.

“Taxation expectations are centred around rationalising capital gains tax to simplify compliance and encourage broader market participation. While there has been some speculation about a cut in the Securities Transaction Tax (STT), this seems unlikely given the government’s revenue focus, said Pranav Haridasan, Managing Director & CEO of Axis Securities.

Making a case for a cut in STT and capital gains tax, Shripal Shah, MD & CEO, Kotak Securities, said while it may be optimistic, a reduction or moderation in capital gains tax or Securities Transaction Tax could significantly improve market dynamics.

According to Shah such steps would not only support domestic retail participation but also make Indian equities more attractive to foreign investors, thus contracting FII outflows, stabilizing the rupee and enhancing overall market sentiment.

2. Cut in income tax rates

There is an expectation that the government may raise the basic exemption limit for personal income tax, with EY India suggesting an increase from ₹3 lakh to ₹5 lakh. This move is expected to enhance disposable income and stimulate economic growth, which is undergoing a slugging period.

Global brokerages Citi and Jefferies also said that any meaningful cut in income tax for individuals with annual salaries of ₹10 lakh to ₹20 lakh could help boost demand, as per a Reuters report.

“We expect the finance minister to simplify tax structures and raise tax exemption limits to boost consumption in the economy, especially the urban side, which has recently shown signs of a slowdown,” said Manish Chowdhury, Head of Research at StoxBox.

3. Fiscal deficit target eyed

The government’s fiscal deficit target can influence bond yields and, consequently, equity markets. A higher-than-expected fiscal deficit may lead to concerns over inflation, impacting investor confidence. Conversely, a balanced approach to fiscal management could boost market sentiment.

According to Puneet Singhania, Director at Master Trust Group, the fiscal deficit target could be at 4.5% of GDP, down from 4.8% in FY 2025. “Such contraction in the fiscal deficit may go a long way in exuding confidence in the capital markets,” said the analyst. He opined that this move could accommodate growth initiatives in both the infrastructure and social sectors.

4. Hike in capex

Indian economy faced challenges in the first half of FY25 amid lower capital expenditure (capex) due to election season, seasonal factors such as severe heatwaves and incessant rainfall in some areas, weak corporate earnings, and slower consumption patterns. This trend is expected to recover in the second half of FY25.

Multiple brokerages said the government pay project a 10% growth in capex for FY 26, which could be positive for sectors like infrastructure, defence and railways.

“We believe that policy continuity along with fiscal prudence in the upcoming Union Budget will be key triggers, especially considering the recent slowdown in the Indian economy and corporate earnings. A 10-12% growth is capex, a fiscal deficit target of around 4.5% for FY26, and measures aimed at reviving the private sector capex would set a positive tone for markets,” said Chowdhury of Stoxbox.

Unhinged capital expenditure from the centre is unlikely – given how important balancing the fiscal situation is – despite the focus on elevating economic growth, opined Haridasan of Axis Securities.

5. Increase in customs duty on gold

The government introduced a reduction in customs duty on gold in the Budget presented in July, resulting in a surge in gold imports. This reduction in customs duty raised concerns about increased consumption, which could also widen the trade deficit.

Against this backdrop, Sugandha Sachdeva, founder of SS WealthStreet, said the government may raise the basic customs duty on gold in Budget 2025 to manage rising imports.

Sachdeva highlighted that India spent $47 billion on gold imports during the first 11 months of 2024, significantly surpassing the $42.30 billion spent in the entire year of 2023.

“To curb this rising trend, especially following last year’s unprecedented cut in import duties, the government may consider hiking the duty in the Union Budget 2025,” Sachdeva said.

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.