Stock markets respond blandly to the Interim Budget

Stock markets have responded blandly to the Interim Budget. At 2:25 p.m. on interim budget day, 1st February, 2024, Nifty 50 is down by 0.046%. Sensex is down by 0.086%. Nifty Bank Index was the biggest gainer by this time. It was up intra-day by 2.90%. Nifty Realty index was the biggest loser. It was down by 1.34%. This was probably because of lack of any incentives for the sector in the Interim Budget. Realty sector was expecting that the cap given in the definition of affordable housing would be increased. There was also the expectation that tax deduction allowed for principal and interest rate payments on home loans would be increased. This was again not done in the interim budget.

No incentives for boosting consumption

Markets were expecting some announcements to boost consumption in the economy. This could have been done through announcement of more income tax reliefs. But the Government kept tax rates unchanged in the interim budget. In the last Interim Budget of 2019, it had announced tax reliefs. Income tax reliefs would have increased the disposable income of Indians. This in turn would have given a boost to consumption in the economy. Nifty FMCG index was up by 0.37% at 2:52 p.m. on the day.

Interim Budget reiterated government’s commitment to fiscal consolidation

The Interim Budget reiterated the government’s commitment to fiscal consolidation. The government announced fiscal deficit target of 5.1% of GDP for FY 25 and 4.6% of GDP for FY 26. The Finance Minister also said that the government will restrain its borrowings so that interest rate costs do not go up on borrowings by private sector companies.

The interim budget extended the existing tax reliefs to startups and investments by sovereign wealth funds by one year, to 31st March 2025. 100% tax rebates are given to startups in three years out of their first 10 operational years under this scheme, subject to certain conditions.

Bank Nifty is the biggest gainer today

Bank Nifty is the biggest gainer today. But these gains having nothing to do with anything given in the Interim Budget. Bank Nifty is up today because of the announcement by US Federal Reserve yesterday, regarding interest rate cuts. The US Central Bank said yesterday that it will start cutting down interest rates only when it becomes confident that inflation rate trajectory has come down more permanently. The higher interest rate scenario has proved to be beneficial for banks. RBI and other central banks are expected to start cutting down interest rates only after the US Federal Reserve starts doing so.

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