Forecasts And Predictions For The Equity Market After 2024-25 Budget

The Union Budget 2024 was announced on 23 July 2024. Following the budget announcements, the stock market witnessed significant volatility. One of the most important changes that led to a sudden dip in the market was the announcement of a capital gains tax increase. On the day of the Union Budget, SENSEX dropped 73 points to close at 80,429.04. NIFTY also lost 30 points, closing at 24,479.05. Earlier in the day, both SENSEX and NIFTY had dropped further, which recovered over time and closed the trading day on an almost flat note.

Experts stated the market volatility caused by the Union Budget was mainly because domestic investors had high expectations from the budget. The expectation from domestic investors was relief on capital gains and personal taxes. However, despite the initial market shock to budget announcements, experts predict that the market has returned to normalcy since. Experts and analysts have shared market strategies to help retail investors make the most of the changes and new announcements in the Union Budget. These strategies can potentially help equity investors to navigate the new changes going ahead. But first, let’s check out the key highlights of the Union Budget for stock market investors.

Key Highlights of The 2024-25 Budget For Stock Market Investment

There were quite a few surprises in store for stock market investors in the Union Budget. Here is a summary of the most important changes related to stock market investments that were announced in the Union Budget.

• The Securities Transaction Tax (STT) on Futures and Options trading has been increased. For Futures trading, the tax has been increased from 0.0125% to 0.02% and for Options trading, the tax has been increased from 0.0625% to 0.1%.

• Long-term Capital Gains (LTCG) Tax rate has been increased from 10% to 12.5% for all financial and non-financial assets.

• The Short-term Capital Gains (STCG) Tax rate has been increased from 15% to 20% for equity shares, units of equity-oriented funds, and units of a business trust.

• Any other financial or non-financial asset investments will continue to attract STCG tax as per the investor’s income tax slab.

• The exemption limit for LTCG tax on financial investments has been increased from ₹1 lakh to ₹1.25 lakhs per year.

• The holding period of all listed securities has been fixed at 12 months for long-term and short-term capital gains/loss determination. Any holding period beyond 12 months for listed securities is eligible for LTCG taxation.

• The holding period for LTCG tax consideration for all other assets has been fixed at 24 months. The 36-month holding period has been removed.

• Lastly, the income earned from share buyback was previously exempt from taxation. It will now be taxed as per the investor’s income tax slab.

Expert Opinions of The Union Budget For Equity Market

Experts had mixed opinions on the Union Budget and its implications for the equity market. Several market experts highlighted both its positive and negative aspects.

The experts view that the rise in STCG from 15 to 20% was sharp. However, the LTCG tax increase is only marginal, considering the exemption limit has also been increased from ₹1 lakh to ₹1.25 lakh. The experts stated that the taxation of share buyback in the hands of investors perhaps may not be well received in the market.

The increase in taxation on F&O trading was expected to reduce entirely speculative trading.

The experts categorised the increase in capital gains taxes and the increase in STT as “short-term negatives” for the market. However, the experts also pointed out several positive aspects of the budget, starting with its strong focus on welfare schemes. The budget's fiscal deficit has also been brought down to only 4.9%, which showcases a solid fiscal consolidation path for the economy.

Expert Predictions For The Equity Market After Budget 2024

Market experts predict that the increased standard deductions on income tax and the revised tax rate can increase consumer/retail investor participation in the equity and stock market.

Few experts view that post-budget infrastructure stocks are expected to show a gradual positive bias. Housing finance and cement stocks are expected to be key beneficiaries of specific SOPs (Standard Operating Procedures) mentioned in the budget. The expert also stated that the budget’s focus on agriculture research and horticulture is good for related companies.

Other market experts mentioned that post-budget small and mid-cap stocks could potentially underperform due to valuation concerns. They also noted that moving forward, the Indian equity market will likely shift to global cues and earnings reports.

Recommended Investment Strategies From Experts

Experts recommend retail investors maintain a cautious and diversified investment approach to navigate the post-budget landscape. Experts recommend investors should look for stocks that have worked on their CAPEX (Capital Expenditure) and reduced their debt.

Other experts recommended that traders adopt a hedged post-budget investment strategy. They recommend traders favour defensive sectors like pharma, IT, and FMCG for long trades. They also recommended traders not to add more investments in sectors like railways, PSUs, and defence as they might be overbought.

Market experts also suggest that investors should look at consumer goods, automotive, and retail sector stocks post-budget as they may offer attractive investment opportunities for retail investors. Lastly, investors should consider diversifying their portfolio after getting the necessary professional financial advice. The focus of retail investors should be on sectors that have benefitted from the Union Budget with new allocations. This includes sectors like infrastructure and agriculture.

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