The budget will be presented on July 23, 2024, during which Nirmala Sitharaman is expected to make significant announcements. It is anticipated that there will be special announcements in this budget for middle-class and poor families, which will have an impact on the Stock Market. In the meantime, experts have shared their views on what impact the budget will have on the stock market.
Will the Market Decline?
According to Christopher Wood, Global Head of Equity Strategy at Jeffries, despite a strong rally in recent years, the Indian stock market is still in its nascent stages of developing strong equity. Any changes in capital gains tax on equities as we approach the budget announcement on July 23 could trigger a significant market decline, similar to what was observed after the Lok Sabha elections result on June 4.
Market Reliance on Retail and Mutual Fund Investors
Wood believes the growing number of retail investors, especially in mutual funds, will bolster the stock market. He cited the example of how the stock market surged despite BJP's electoral setbacks, increasing by 13.3% since June 4. This rapid recovery highlights the rising influence of retail investors who have continued to buy despite market sell-offs.
According to a report by Business Today, the nature of the Indian stock market is changing. Retail investors and mutual funds increased their shareholdings from 16.6% at the end of FY21 to 18.4% by the end of FY24. Conversely, foreign institutional investors' (FIIs) ownership dropped from 22.1% to 19.9% during the same period.
What's the Capital of the Indian Stock Market?
The capital of the Indian stock market has surged to 5.2 trillion dollars, up 296 percent from its low of 1.3 trillion dollars in March 2020. This now accounts for 1.96% of the MSCI AC World Index, up from 0.93% in March 2020. However, market capitalization is now 145% of GDP, a significant rise from 52% in March 2020.
Key Points to Watch
Wood advises keeping a close eye on indications of populist announcements in the budget to satisfy coalition partners. While concerns about potential capital gains tax hikes remain low, any major announcements could trigger more significant market corrections than anticipated. The budget is also expected to address the demands of minority parties.
Another factor boosting confidence in the Indian market is the growing belief in the long-term stability of the Rupee. A stable Rupee will enhance the appeal of Indian equities, which will primarily drive domestic demand. This domestic focus, coupled with rising retail participation and expectations of a stable currency, could contribute to the continued growth of the stock market.
