Reminiscent of the past two years, the market has made positive strides ahead of the Union Budget 2023-24 (FY24).

The benchmark National Stock Exchange Nifty has gained 1.8 per cent in the last month.

Typically, markets tend to gain ahead of the Budget as investors build in optimism.

The one-month returns of the Nifty in seven of the past 10 years have been positive.

“Before every Budget, expectations build up. Market rallies are based on expectations.

“In January, institutional investors come back after their annual holidays.

“Most Budgets in recent times have disappointed some sections of the market.

“Moreover, the Budget has largely lost its relevance.

“The scope of radical changes in taxation does not exist anymore unlike in the 1990s.

“Many major policy changes are announced outside the Budget.

“We are living in a post-goods and services tax era,” said Ambareesh Baliga, an independent equity analyst.

The Nifty has delivered negative one-month returns after the Budget in six of the 10 years.

The discrepancy in the pre- and post-Budget performance of the indices has been attributed to outsized expectations investors have had and the fading relevance of the Budget vis-à-vis the announcement of major policy changes.

The Budget this year is likely to continue in the direction the government had set forth in in the last Budget, with reference to development and infrastructure.

“The expectation is that the government will do more infrastructure and defence-related investments and some steps towards employment generation.

“This is the last full Budget before the general election.

“Perhaps some sops for the bottom of the pyramid.

“I think all these have been factored in by the markets,” said U R Bhat, co-founder, Alphaniti Fintech.

Antique Stock Broking, in a note to investors, said expectations are running high in terms of delivering another growth-tilted Budget.

“We believe the government’s focus will be on higher capital expenditure (capex) and rural spending to nurture early signs of capex cycle recovery and alleviate rural slowdown.

“Any disappointment in the form of higher fiscal consolidation will be construed negatively, especially at the time of ongoing global macro headwinds,” the note said.

India’s equity markets were an outperformer in 2022 among major global markets, notwithstanding huge selling by foreign portfolio investors.

With better economic prospects, domestic institutional investors bought shares worth Rs 2.7 trillion.

This was supplemented by retail flows that betted on India’s economic prospects.

“We expect a growth-oriented Budget (while sticking to fiscal discipline) to help cyclical recovery, thus recommending an overweight stance on investment-linked sectors like industrials, commodities, real estate, and public-sector banks,” read the Antique Stock Broking note.

However, pursuing aggressive growth will have to come with fiscal prudence, observed analysts.

“Union Budget FY24 is likely to be a tightrope walk, considering its fiscal guidance and the 2024 union elections.

“We estimate fiscal deficit for FY24 at 5.8-6 per cent and 2022-23 at 6.2 per cent.

“Muted nominal gross domestic product growth (due to global slowdown and low deflator) will constrain tax revenue and government spending, compared to the strong pace in the last couple of years.

“Thus, the government’s innovation will be tested – to deliver an effective Budget, encompassing capex, rural, social, policy incentives, subsidies, and tax/growth buoyancy,” stated a note by PhillipCapital.

Bhat said the thrust will be on infrastructure modernisation and defence.

“Given the tax buoyancy, the government should have enough to pump in some extra money to give a fillip to these sectors.

“The market movement will depend upon which sectors get the added impetus.

“If there is not enough allocation to these sectors, there could be some volatility,” he observed.

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