Union Budget 2025-26: Impact on Indian Stock Market

 Introduction

The presentation of the Union Budget 2025-26 by Finance Minister Nirmala Sitharaman has led to significant fluctuations in the Indian stock market. The Bombay Stock Exchange (BSE), National Stock Exchange (NSE), and Multi Commodity Exchange (MCX) conducted a special trading session on Saturday, 1 February 2025, to accommodate the market response to the budget announcements. Traders and investors are closely monitoring various sectors, including insurance, FMCG, power, infrastructure, and banking, to gauge the impact of budgetary policies on the financial markets.

Stock Market Performance on Budget Day

The benchmark indices, Sensex and Nifty 50, witnessed heightened volatility and traded lower following the budget speech. Historically, the Nifty 50 has shown intraday fluctuations within a 2-3% range on Budget Day, presenting both opportunities and risks for market participants. This year was no exception, with investors reacting to announcements related to fiscal deficit, taxation, capital expenditure, and economic growth projections.

Impact on Debt Markets

The budget’s fiscal management has been seen as a positive development for debt markets. The fiscal deficit for FY25 was recorded at 4.8%, improving from the targeted 4.9%, while the forecast for FY26 stands at 4.4%. The central government's commitment to fiscal discipline has positioned India as a strong emerging economic power post-COVID. The expected 15-basis point reduction in the 10-year government security yield further supports this outlook, making debt instruments more attractive for investors.

Key Takeaways from the Budget

Economic Growth and Fiscal Prudence: The budget continues to emphasize economic growth through strategic capital expenditure while maintaining fiscal prudence. Despite a projected growth rate of 6.8% for FY26, the government’s fiscal consolidation efforts strengthen investor confidence.

Taxation Benefits: The reduction in tax burden increases disposable income for the middle class, potentially boosting consumption and investment in equity markets.

Sectoral Impact: The budget highlights support for key sectors such as infrastructure, MSMEs, start-ups, and employment generation programs. This is expected to drive economic expansion and wealth creation.

Market Participation and Capital Formation: The increase in disposable income is likely to encourage more retail investors to participate in the stock market. Currently, India has approximately 11 crore unique investors, and this number is expected to grow, reinforcing the cycle of capital formation and economic growth.

Conclusion

The Union Budget 2025-26 builds on India’s growth trajectory by balancing fiscal prudence with developmental policies. While the stock market experienced volatility, the long-term outlook remains positive, with increased consumption, capital formation, and job creation expected to drive sustained economic expansion. Investors will continue to assess market trends and sectoral developments to align their portfolios with the evolving financial landscape.