Union Budget 2023: Stock Market Expectations 

The Union Budget is critical for maintaining the economic advancements of the country. As guided by Article 112 of the Constitution of India, the central government must present a yearly budget before the beginning of the financial year. The Union Budget 2023 is significant for various reasons. It will be the last full-fledged budget before the election in 2024. 

The Finance Minister, Nirmala Sitharaman, will present the budget on February 1, 2023. 

Why is the Union Budget important for India?

The Union Budget is a significant chapter of the Indian Parliamentary system. 

Statement of expenses and receivables 

The Union Budget outlines the details of the projected receivables and payables of the government in a particular Fiscal year. It has two significant components – capital budget and revenue budget. 

The capital budget accounts for the government’s capital payable and receipts. Capital receipts are loans from the public or the RBI, whereas capital payables include expenses incurred in providing healthcare, educational, and developmental facilities. 

The revenue budget accounts all revenue receivables and payables by the government.

Importance of Union Budget

The budget is the report card of the financial well-being of a country. It offers manifold benefits, from assisting in efficient resource allocation to determining the future growth path. Below are the primary benefits of the Union Budget.

• It allows the government to take stock of available resources and employ them in the best way possible.
• Reduce changes in financial mismanagement and make the government accountable for managing receivables and payables.
• It helps meet the objectives of eliminating poverty and reducing unemployment. 
• Reduces wealth and income disparity by modernising the tax regime.
• It aids in diminishing economic fluctuation by efficiently handling inflation and deflation to bring stability.  
• The government plans a new tax structure to improve its income from revenue while reducing the tax burden on citizens.

Stock market expectations from Union Budget 2023

Since it will be the last complete budget before the 2024 election, the anticipation is high. As a stock market investor, you might wonder what the implications of the budget are on your current and future investments. 

Equity investors should focus on three key factors. 

Emphasis on fiscal consolidation: The government has targeted to bring down the fiscal deficit to 4.5% of GDP by FY26. With the rising concerns over global recession conditions, the market will keenly track the government’s performance in meeting its target.

Balancing between subsidies and disinvestment: Like the previous years, FinMin will focus on policy reforms to strike a balance between the bottlenecks for growth like subsidiaries and lay out a clear roadmap for privatisation of government PSUs.

The impetus for rural economy: There will be policies focusing on lifting rural demand through the deepening of PLI schemes. The government will continue to increase capital expenditure from the existing 2.9% of GDP to 3.5% of GDP approximately. 

Overall, one might expect the Finance Minister to maintain a fine balance between reducing fiscal deficit and reform by increasing revenue earnings and promoting capex expenditure simultaneously. 

From an investor’s point of view, sectors influenced by higher government spending and support will experience faster growth. The focus will be on energy, healthcare and pharma, defence, speciality chemicals, technology, and manufacturing. The Union Budget 2023 will continue to focus on reviving domestic manufacturing through PIL schemes for labour-intensive sectors. Manufacturing, capital goods, defence, and public sector banks will receive fresh investments for growth.    

Market trends pre and post budget

Usually, the market remains volatile around and after the Union Budget. In the last eleven years, the market has fallen five times and risen six times, oscillating between -3% to +3%. On budget day, the market has remained positive. 

Summing up

It seems like the government will try to deliver a long-term development and utilitarian budget instead of a populist budget in 2023. Overall, the stock market participants will appreciate a general focus towards fiscal consolidation over mid-term or short-term policies. Additionally, nil or minimum moderation on the existing capital tax norms will keep investor sentiments bullish. 

The banking, manufacturing, and capital goods sectors to rally after the budget, while government incentives to promote infrastructure development, digitization, and PIL schemes will help energy, healthcare and pharma, speciality chemicals, technology and manufacturing to rally after Union Budget 2023.