Why did stock markets get cold feet after the Budget?

Both Sensex and Nifty remained flat even as the Budget is anticipated to boost consumption to some extent due to exemptions in personal taxation. So, what really irked investors?

By Nasrin Sultana

Published: Feb 1, 2025 06:20:43 PM IST

Updated: Feb 1, 2025 06:30:02 PM IST

The markets have responded to the Union budget with a mixed view, primarily due to the modest 10 percent YoY increase in capex for FY26, falling short of expectations Image: Shutterstock

Stock markets in India did not get the boost from the Union Budget proposals for financial year 2025-26. As equities have been struggling to hold ground in last few weeks, investors had pinned hopes on Finance Minister Nirmala Sitharaman to wave a magic wand on the markets to get back the mojo. But it did not work out.

Both benchmark indices Sensex and Nifty ended flat even as the Budget is anticipated to boost consumption to some extent due to wider exemptions in personal taxation. The BSE Sensex ended at 77,505.96, up 5.39 points or 0.01 percent while the Nifty ended at 23,482.15, down 26.25 points or 0.11 percent.

What really irked investors?

Vinod Nair, head of research, Geojit Financial Services, “The markets have responded to the Union budget with a mixed view, primarily due to the modest 10 percent YoY increase in capex for FY26, falling short of expectations," he says.

Nair explains that sectors like railways, defense, and infra are affected on which the market relies for the performance, dampening the sentiment. On the other hand, consumption-based sectors, which are expected to benefit the most, had a low effect on the broad market due to their modest market mix position. “However, the market will begin to factor in the broader benefits to the economy and corporations over the course of the year due to a rapid increase in disposable income and boost in ease in business,” he adds.

Unlike more than 400 basis points fiscal consolidation seen cumulatively in the past four years (FY21-FY25), the central government slowed down the pace of fiscal consolidation in FY26 and targeted to bring down the fiscal deficit to 4.4 percent of gross domestic product (GDP) in FY26 (from 4.8 percent of GDP in FY25).

Also read: Budget 2025: Government's big push for agri growth

The FM announced income tax relief for middleclass households to give boost to urban consumption. “However, the capex budget target was quite disappointing and was largely in line with nominal GDP growth assumption,” says Tanvee Gupta Jain, chief economist, UBS India.

The Budget has allocated Rs11.21 lakh crore towards capital expenditure (capex) in FY26, which is a mere 0.9 percent increase from previous fiscal. Against the Budget estimates of Rs11.11 lakh crore for capex, the government is expected to spend Rs10.18 lakh crore in revised estimates for FY25.

According to Navneet Munot, MD and CEO, HDFC Asset Management , the budget walked the talk on fiscal consolidation without losing sight of the much-needed consumption boost needed to stimulate economic growth. “The government has been doing heavy lifting on public capex. Now, spurring consumption by putting more money in the hands of taxpayers is a step in the right direction. Government’s intention of investing in economy, people and innovation was the need of the hour to harness India’s demographic edge,” he says.

However, Munot does not rule out short-term volatility due to the current global economic backdrop, the long-term direction rooted in policy prudence and support for growth should bolster Destination India’s credentials for foreign and domestic investors alike.

Only respite in the markets on Saturday were buying in consumption-led stocks like FMCG with the BSE FMCG index closing nearly 3 percent higher.

Accorinding to Gupta, the government missed the budgeted capex target in FY25 and projects to stabilise at 3.1 percent of GDP in FY26. “The government's projected headline capex growth of 10.1 percent YoY for FY26 seems muted, in our view. Looking at the capex by major infrastructure sector suggests the pick-up in FY26 to be largely led by defence, housing, power and petroleum,” she explains.

Meanwhile, in revised estimates for FY25, the government has revised its fiscal deficit target to 4.8 percent of GDP. The fiscal deficit to GDP in the FY26 is projected at 4.4 percent.

This is first full-year Budget of the coalition government since it assumed power for a third consecutive term in 2024. Striking a balance between growth and fiscal prudence has been a steep risk, considering India is already battling a series of risks threatening to derail economic momentum.