Retail investors in India had high hopes for the Union Budget 2024, which came soon after the country's general elections. The investors' hopes for the budget were lower taxes on capital gains and personal income. The Union Budget announced on 23 July 2024 was issued to mixed feelings from investors. Even though efforts were made to make the taxation of investments more uniform, the much-needed tax relief was not provided in the way investors desired.

Significant market volatility was witnessed after the budget announcements on the day of the Union Budget. SENSEX dropped 73 points to close at 80,429.04, and NIFTY also lost 30 points, closing at 24,479.05. Earlier in the day, both SENSEX and NIFTY had dropped further, but they recovered over time and closed the trading day on an almost flat note. Despite the initial shock, the market has recovered since the budget announcements.

Given the new budget announcements and government budgetary allocations in different sectors, market analysts have devised strategies to help investors cope with the expected changes in the equity market. Before you learn about these market predictions and investment strategies, let’s review the fundamental changes announced in the Union Budget 2024 for investors.

Key Union Budget Highlights for Investors

Here’s a detailed look into all the important announcements from the Union Budget that are relevant to investors.

1. Long-term Capital Gains Tax (LTCG) has been increased from 10% to 12.5% for all financial and non-financial asset investments.

2. Short-term Capital Gains Tax (STCG) has been increased from 15% to 20% for financial investments like equity shares, units of equity-oriented funds, and units of a business trust.

3. The STCG tax for any other financial or non-financial asset investment will be taxed according to an investor’s income tax slab.

4. LTCG tax exemption limit has been increased from ?1 lakh to ?1.25 lakh per year.

5.The Securities Transaction Tax (STT) has been increased for Futures and Options (F&O) trading. It has increased from 0.0125% to 0.02% for Futures trading and from 0.0625% to 0.1% for Options trading.

6. The holding period of all listed securities has been fixed at 12 months for long-term and short-term capital gains/loss determination. Any listed securities held over 12 months are eligible for LTCG taxation.

7. The 36-month holding period has been removed. The holding period for LTCG tax consideration for non-listed securities and other financial assets has been fixed at 24 months.

8. The income earned from the buyback of shares has now been made taxable according to the investor's income tax slab.

Expert Analysis of Union Budget Announcements For Investors

Like market investors, experts also had mixed opinions on the Union Budget 2024, with analysts and experts pointing out the good and the bad of the budget.

The Good: Experts stated that the increase in taxation in F&O trading is suitable for investors as it reduces entirely speculative trading, which can lead to capital losses. They also pointed out that the focus on welfare schemes and the fiscal deficit being brought down to only 4.9% is a good sign, which shows a solid budgetary consolidation path for the economy.

The Not Good: Experts had concerns regarding the sharp increase of STCG taxes from 15% to 20%. However, the LTCG tax increase was deemed only marginal by most experts, considering the exemption limit was also increased from ?1 lakh to ?1.25 lakh. Another thing experts agreed upon was the income from share buybacks being taxed can be negatively received in the market. Lastly, though noteworthy, the increase in STT was categorised as a “short-term negative” for the equity market.

Market Predictions After Union Budget

One of the key predictions by market analysts and experts post-budget is an increase in retail investor participation in stock market. This is fueled by the increase in standardised deductions on income tax and the revised tax slabs. Experts predict that certain industries and their stocks are going to show a gradual positive bias namely infrastructure stocks.

Housing finance and cement stocks are expected to be key beneficiaries of specific government SOPs (Standard Operating Procedures) mentioned in the budget. Agriculture research and horticulture related companies are also expected to benefit from the budget. Lastly, experts note that small and mid-cap stocks could potentially underperform post-budget, due to valuation concerns.

Recommended Investment Strategies Post-Budget

Considering the changes and government allocations in different industries, experts recommend retail investors to consider investing in consumer goods, retail sector, and automotive stocks. Industries like infrastructure and agriculture can provide good investment opportunities for investors. However, proper research and thorough understanding of the business and how it is benefitted from the Union Budget is required before investing.

In general, experts recommend retail investors focus on diversifying their investment portfolio and investing in stocks that have worked on their CAPEX (Capital Expenditure) and reduced their debt. If you need, opt for professional financial advice before investing to protect your capital and interest as an investor.

Serious Truth About Equity Market Predictions Post Union Budget

Post-budget experts recommend that traders adopt a hedged investment strategy. Traders are discouraged from investing more in sectors like railways, PSUs, and defence as they might be overbought. Investments in sectors like pharma, IT, and FMCG are recommended for traders for long trades.

Conclusion

These are some of the most important forecasts and predictions for the equity markets post-Union Budget. For more information about equity markets and updated information about stock market investments, be sure to check out the Sharekhan Knowledge Center.