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The Indian Union Budget 2025-26, unveiled recently, has elicited a mixed response from market analysts. While the budget is largely viewed as pro-middle class, pro-MSME, and pro-rural, the modest increase in capital expenditure (capex) has sparked some concerns. The benchmark indices, Sensex and Nifty, initially experienced a dip following the announcement, reflecting the market's initial reaction to the budget's details. However, the indices later recovered much of their initial losses, signaling a degree of market resilience and anticipation of the long-term effects of the budget's measures. The budget's focus on boosting consumption through personal income tax revisions is a key component. By revising income tax slabs, the government aims to inject more disposable income into the hands of the middle class, thereby stimulating consumer spending and driving economic growth. This strategy is particularly relevant given the recent slowdown in economic expansion observed in the preceding two quarters. The government's attempt to stimulate consumption represents a significant policy decision, aimed at addressing the current economic climate and fostering renewed economic activity.
The relatively modest increase in the capex target for FY26, rising to Rs 11.2 lakh crore from Rs 11.11 lakh crore in FY25, has drawn criticism from some analysts. This marginal increase, representing a year-on-year growth of 9.8 percent, is considered lower than market expectations. Analysts like Apurva Sheth of SAMCO Securities attribute this to what they perceive as a shift in governmental priorities, potentially influenced by political factors and populist spending. This cautious approach to capex could potentially impact sectors heavily reliant on government infrastructure spending, including railways, defense, infrastructure, and engineering. Conversely, sectors expected to benefit from increased consumer spending, such as FMCG, auto, and consumer durables, are anticipated to experience a surge in activity. The contrast between a consumption-driven approach and a relatively conservative approach to capex highlights the complex balancing act faced by the government in navigating economic challenges while maintaining fiscal discipline.
The FY26 fiscal deficit, budgeted at 4.4 percent, is in line with market expectations, easing concerns about potential inflationary pressures. Similarly, the planned net borrowing of Rs 11.54 lakh crore for FY26 is lower than that of FY25, a positive signal of fiscal prudence. However, the impact of these fiscal measures on different sectors varies considerably, according to various analysts. Manish Jain of Mirae Asset Capital Markets, for instance, sees the budget favorably for sectors like FMCG, consumption, retail, real estate, auto, and new-age companies. He is less optimistic about the banking sector, suggesting that the rise in gross borrowings could negatively affect banks due to potential yield increases and subsequent impacts on treasury income. Other analysts highlight specific policy announcements. The rationalization of direct taxes, the reduction in basic customs duty (BCD) on consumer electronics, and the increased FDI limit in the insurance sector to 100 percent are cited as examples of positive moves. Furthermore, allocations for the Maritime Development Fund and initiatives related to PM Gati Shakti are seen as positive for their respective sectors.
The overall assessment of Budget 2025 is varied. While some analysts praise the government’s fiscal discipline and pro-middle-class measures, others express concerns about the limited increase in capex. The budget's emphasis on a consumption-led recovery is evident, with the substantial tax relief designed to stimulate spending among the middle class. This strategy aims to counter the recent economic slowdown and boost overall economic activity. However, the long-term effects of this strategy, and the trade-offs involved in prioritizing consumption over infrastructure development, remain to be seen. The market's initial reaction, characterized by a temporary dip in the benchmark indices followed by a rebound, reflects the complexity and uncertainty associated with predicting the consequences of a significant fiscal policy shift. The success of this budget will depend on the effectiveness of its measures in stimulating consumption, promoting investment, and achieving the stated goals of inclusive growth and a 'Viksit Bharat' (developed India). Further analysis and observation will be necessary to fully assess the long-term impact of the Budget 2025-26 on the Indian economy.
The differing opinions highlight the multifaceted nature of the budget and the challenges inherent in predicting its complete impact on the diverse sectors of the Indian economy. The focus on revitalizing urban consumption is expected to have a positive ripple effect across the economy, potentially mitigating the impact of the recent slowdown. Furthermore, the budget's emphasis on promoting MSMEs, manufacturing, and agriculture underscores a commitment to inclusive growth, aiming to benefit a broad spectrum of the population. Investments in crucial sectors such as infrastructure, power, financial services, and urban development are presented as strategic steps towards fostering long-term economic resilience and positioning India for global leadership in innovation. The simplified tax code and improvements to tax compliance frameworks are intended to create a more investment-friendly environment. However, the long-term implications of the budget's cautious approach to capex and the potential consequences for sectors dependent on government spending remain an area of ongoing discussion and analysis among market experts.
Source: Sensex, Nifty: Stock market analysts reveal winners & losers of Budget 2025