Impact of the Budget on Share Markets
Every year, the government of India plans the budget. A budget is a report that has a lot of information about how much money the government has and how much money it will spend. This extensive report has a comprehensive analysis of the revenue and expenditure between April 1 and March 31 of a given year.
This budget report is key to figuring out how the economy works. It helps us figure out things like how much to charge people for loans, how much the stock market is worth, and how much money the government should give to different groups.
Why should you be concerned about the union budget and its impacts? As a taxpayer and a potential investor, every decision laid out in the budget report changes your financial situation.
Read on to understand more about the union budget and its impact on the Indian stock market.
Why is the Union Budget Important?
The central government prepares the union budget to help sustain and grow the country’s economy. The budget ensures
- Financial resources are all effectively allocated
- Reduction of poverty and unemployment in the country
- Equality in income and the wealth of the nation
- Clarity and allocation of tax structures and commodity prices
What Does the Union Budget Report Contain?
The union budget details every estimation and proposed expenditure for the Indian economy during a given fiscal year. It is divided into two parts:
- The capital budget is the budget for the government. It has a lot of information that tells you how much the government has to pay and how much they have to get. It also tells you how the government will pay for things like developing and maintaining buildings, offices, schools, hospitals, etc. It also tells you about loans and money the government has.
- The revenue budget tells you how much money the government has and how much it spends. The revenue budget helps with estimations for the new year.
How Does the Union Budget Affect the Economy?
If we take a look at different aspects determined by the budget, we can categorize them as follows:
- Planning of year-long government activities: This includes the progress of things like the building of roads, the maintenance of facilities, and the completion of ongoing projects.
- Structuring financial operations: These include creating estimations and making decisions involving the public’s finances like taxes, borrowing, expenditures, etc.
- Creating an economic policy: These measures focus on building rules and creating grants to help sustain the economy, decrease pay disparity, and provide equal opportunity for every citizen.
How Does the Union Budget Impact the Share Market Today?
If you look at the stock market today, every change is the result of the government’s financial decisions. When the government spends more money than it has, it’s like a family that spends more money than it makes. The gravity of the deficit changes how much money India has. When India has less money, it changes how much interest people have to pay for a loan or how much a company has to pay for a stock.
What Key Factors of the Union Budget Impact the Indian Stock Market?
- Stock movement: When there are changes in the budget, it affects the stock market. For example, when interest rates increase, every industry’s cost of capital also rises. Now, profitability will decrease, lowering stock values. When there is negative stock market news, more people try to pull out of stocks to save their invested money. This further reduces share market prices.
- Income tax exemptions: People invest in the stock market based on their tax brackets and the amount of money they have left to invest. For example, if the union budget increases the tax exemption, it will increase profits in the stock market.
- Sector policies: When the government provides grants to help any sector—for example, by adding import or duty exemptions, stock prices of industries like textiles will increase. In the event that the taxes on cryptocurrency increase, it will negatively impact the share prices of that sector as fewer people will continue to invest in the stocks.
- Changes in corporate tax rates: When the tax rates change, they can affect the stock market. For example, if the tax rates change so that people have to pay more taxes, they will sell their stocks. This will cause the stock prices to go down.
How Do you Choose the Right Stocks in the Share Market Today?
The most important thing to do when you want to invest in the stock market is to find good companies to invest in. You can do this by reading the business news and finding out which companies are doing well. Also, you can find out about the government budget, which will tell you how the government feels about each sector. When the government changes policies in a sector, the stock price will change too.
Financial analysts make predictions about how the stock market will perform. They make their predictions based on how they think the economy will do in the future. These predictions affect how people trade stocks on the stock market.
So how can you succeed in investing in the share market?
- Outline your goal for investing – Before you invest your money, you should decide what you want to do with it. Are you investing for a short-term goal, like buying a car, or are you investing for a long-term goal, like saving for retirement?
- Decide how you want to build your portfolio – This will depend on how much risk you would like to take with your investments. Will it be in safe options like large-cap and value stocks? Or would you want to grow your stocks faster and invest in riskier shares like mid and small-cap stock options?
- Choose industries that you would like to explore – It is always better to choose to invest in industries you have some knowledge of, as it will drive you to learn trends and explore ways to move stocks.
- Shortlist your stocks based on share market news and ongoing trends – You can study the performance of different companies, growth rates, return percentages, etc.
Conclusion
Budgeting is key to estimating various aspects of our economy. Every decision laid out in the budget report changes your finances. The union budget affects the Indian stock market in many ways. The gravity of the deficit impacts how much money India has and changes interest rates and stock prices.
Analysts predict how the share market will perform based on the decisions made for the fiscal year. Decide how much risk you want to take with your investments before diving into the stock market. Shortlist your stocks based on share market news and ongoing trends.
Need help with getting an instant CIBIL report and choosing the right financial options? Explore our service suite on the Piramal Finance website.