Mixed reaction from markets on Union Budget

Mixed reaction from markets on Union Budget
Mixed reaction from markets on Union Budget

The Union Budget for the financial year 2025-26 has received a mixed response from the stock markets in India. Despite expectations of a boost from the budget proposals, equities have struggled to hold ground in recent weeks.

The BSE Sensex closed at 77,505.96, up by a mere 5.39 points or 0.01 percent, while the Nifty ended at 23,482.15, down by 26.25 points or 0.11 percent.

This flat performance came despite the anticipated positive impact on consumption due to personal taxation exemptions.

Vinod Nair, head of research at Geojit Financial Services, attributed the mixed market response to a modest 10 percent year-on-year increase in capital expenditure (capex) for FY26, which fell short of investor expectations. He noted that sectors like railways, defense, and infrastructure, which the market relies on for performance, were affected, dampening overall investor sentiment.

However, Nair believes that the market will eventually recognize the broader benefits to the economy and corporations over the course of the year, driven by an increase in disposable income and improved ease of doing business. The central government has slowed its pace of fiscal consolidation, targeting a fiscal deficit reduction to 4.4 percent of GDP in FY26, down from 4.8 percent in FY25.

Market response to budget announcements

This is a less aggressive approach compared to the past four years. Finance Minister Nirmala Sitharaman announced income tax relief for middle-class households to boost urban consumption. However, Tanvee Gupta Jain, chief economist at UBS India, found the capex budget target disappointing as it aligned closely with nominal GDP growth assumptions.

Navneet Munot, MD and CEO of HDFC Asset Management, praised the Budget for maintaining fiscal consolidation while also boosting consumption by increasing taxpayers’ disposable incomes. He emphasized the importance of the government’s intention to invest in the economy, people, and innovation to harness India’s demographic advantage. One sector that did see a positive impact was consumption-led stocks, with the BSE FMCG index closing nearly 3 percent higher, driven by buying interest.

This Budget is the first full-year Budget for the coalition government since it assumed power for a third consecutive term in 2024. Striking a balance between growth and fiscal prudence remains a significant challenge given the series of risks facing India’s economic momentum.

Harper Johnson

Harper Johnson stands at the forefront of digital marketing, where she dissects and interprets the impact of online advertising trends, social media dynamics, and search engine algorithms on consumer behavior.

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