Union Budget 2023: What To Expect For Stock Market

The stock market wish list from Budget 2023

Will Budget 2023 be a stock market budget and what would be the effect of the budget on share market? These are early days, but expectations are building up. Budget and stock markets have a rather long and strange relationship. Budget 2023 would typically set the tone of stock market 2023 and most investors would like to know the best stocks to buy before budget. There would also be a plethora of stock market predictions 2023.

Let us now focus on stock market expectations from the Union Budget 2023. The big question; is whether budget is good for the stock market, but we have to wait for the budget. Let us quickly run through the budget 2023 expectations for stock market.

BUDGET 2023 EXPECTATIONS FOR STOCK MARKETS

Broadly the budget expectations for the stock markets can be built across five broad premises. Here is how to go about building the budget 2023 expectations.

1) Macro expectations from Budget 2023, revolve around growth and fiscal deficit control. It is going to be a challenging year but there are two things that are expected. Firstly, the government has done well to curtail fiscal deficit at 6.4% of GDP in Budget 2022 and it looks set to achieve the same. Now it must cut the fiscal deficit in Budget 2023 to 5.8% or lower. In addition, a progressive glide path to 4.5% over the next 3 years would be a big boost for stock markets.  Also, focusing the government spending on Capex and reducing the focus on subsidies would be a market booster.

2) Capital gains and Dividends tax must be tweaked. That is long overdue. STT is contributing $3 billion so it is unlikely to be touched. However, the same cannot be said about long-term capital gains. The 10% LTCG on equities is just distorting long term returns and forcing short-termism to maintain the Rs1 lakh annual limit. Also, dividends being taxed at the peak rate is an example of double taxation. It is time to rationalize and make dividends tax-free once again.

3) The best way to boost markets is to put more money in the hands of people. There are two things the government can do. Firstly, it can tweak the new tax system to include standard deductions and health insurance exemptions. Alternatively, it can raise the base exemption limit to Rs5 lakhs and just scrap the new tax system. It will surely be a boost to consumption. Spending and demand is one of the best ways to drive up interest and enthusiasm in the stock markets.

4) It is time for directed incentives for equity investing. For instance, ELSS funds are exempt, but they are now part of the overall limit of Rs1.50 lakhs under Section 80C. That makes it sub-optimal. What the government can do is to create a dedicated limit for ELSS over and above the Section 80C limit of at least Rs1 lakh per annum. Budget can also look at including passive funds as complementary rather than competitive to active ELSS funds. The ELSS concept can also be extended to debt. In addition, the inclusion of Indian bonds in the global bonds indices can also be a force multiplier for FPI flows.

5) It is time for some policy incentives at a macro level. The PLI (product-linked incentive) has been a game changer for the Indian economy and also for specific sectors. Textiles and defence have done very well in the markets after the announcement. Also, the budget can target a lot more sectors very specifically that can become specific and focused stories for the market. Above all, it is time for the government to look at special incentives for the services sector. The one factor that is likely to help cut current account deficit of the Indian economy this year is the boost from services exports. There is an urgent need to give big incentives to the service sector so it realizes its full potential and also tones down the CAD further.

These are the positive expectations. On the flip side, one major expectation is that the government does not allow any negative surprise to creep into the budget. That can normally change the undertone of the market and is best avoided!