The Indian stock market is poised for significant movements as it approaches the Union Budget 2025, to be announced on February 1. With benchmark indices, BSE Sensex and Nifty50, already showing bullish trends, trading respectively at 77,253.98 and 23,439.55, investors are bracing for the financial roadmap the government will lay out for the upcoming fiscal year.
At 12:30 PM on budget day, the Sensex had climbed by 0.64% and Nifty50 showed gains of 0.82%. This uptick is largely reflective of optimistic investor sentiment as participants anticipate cues from the Economic Survey 2024-25, which is expected to detail India’s economic performance and sectoral trends.
According to Angel One, insights from the budget will significantly influence investor sentiment, as they look for clarity on future growth prospects. Historically, budget announcements have demonstrated substantial impacts on equity markets, and the recent dip of 12% year-on-year (Y-o-Y) in government capital expenditure from April to November 2024 prompts caution among investors.
Motilal Oswal highlighted the importance of capex allocations, noting any commitment above Rs 11 trillion could positively surprise the market. Yet, hesitation surrounds potential handouts, as investors recall recent state election promises. G Chokkalingam, founder of Equinomics Research, advises focusing on small and mid-cap stocks to seize investment opportunities post-Budget.
Chokkalingam suggests investors should be ready to capitalize on quality small and mid-cap stocks if the market experiences a downturn after the Budget. For those anticipating short-term gains, he recommends allocating 70% of their portfolio to small and mid-cap stocks, with the remainder reserved for large-cap stocks.
“The Budget’s impact is likely to be short-lived, lasting only days,” warns V K Vijayakumar, chief investment strategist at Geojit Financial Services. “Yet, growth-stimulating measures like cuts in personal income tax could rally the market.” He emphasizes the long-term trend will depend more heavily on GDP and earnings growth.
Technical analysts at Angel One have noted the Nifty has recently faced significant corrections, falling below important moving averages, creating concern among investors. Nevertheless, the index is currently testing key support levels within a 'Falling Wedge' pattern, with potential for market relief if the support zone between 22,800 and 22,400 holds firm.
On the other hand, predictions about the Indian stock market aren't entirely rosy. The Economic Survey 2025 expresses concerns about possible corrections resulting from elevated valuations and strong correlations with the U.S. market. With many retail investors newly participating post-pandemic, the potential impact of any significant market correction could be severe.
According to the survey, historical data shows the Nifty 50 usually reacts negatively to corrections within the S&P 500. Between 2000 and 2024, of the 22 instances where the S&P 500 dropped by over 10%, the Nifty 50 saw declines averaging around 10.7%.
At the same time, the U.S. stock markets have enjoyed healthy performance, bolstered by record corporate earnings and returning investor confidence, particularly buoyed by major tech companies. Yet, alongside this progress, looming corrections raise uncertainties about sustainability, as mentioned by the Economic Survey 2025.
Despite the positive momentum surrounding the upcoming Union Budget, caution is warranted, especially for retail investors who have not weathered previous market corrections. People should also note the varying sentiments across sectors as detailed by brokerage Emkay Global's analysis of past budget performance.
Emkay reports differing sector responses, indicating Pharma is leading with the highest positive close rates post-Budget, followed by Media sectors. Conversely, sectors like Oil & Gas have shown weaker momentum.
Investors are advised to leverage the upcoming Budget announcements strategically. Short-term traders may find the most potential for gains within the Pharma, Media, and IT sectors, which have consistently produced positive returns. Alternatively, long-term investors are cautioned to tread carefully as historical data suggest many indices underperform over time.
Overall, as the market grapples with immediate budget impacts versus longer-term economic performance indicators, participants should keep agility front and center, continuously monitoring for any policy signals from the government.
With all eyes on the February 1 announcement, how the Union Budget addresses these economic issues could very well shape investor decisions for the foreseeable future.