Markets rally, but need to sustain the momentum

All through the Union Budget presentation by finance minister Nirmal Sitharaman, equity indices hovered 1% higher than the previous close. 

Published: 03rd February 2021 03:22 AM  |   Last Updated: 03rd February 2021 10:11 AM   |  A+A-

BSE, Sensex, NSE

Bombay Stock Exchange. (File Photo | EPS/ Debdutta Mitra)

There was tension in the air ahead of the Budget presentation. Over the past week, benchmark indices corrected over 10%. When trading began on Monday, there was anticipation. But, not many were willing to stick their neck out. All through the Union Budget presentation by finance minister Nirmal Sitharaman, equity indices hovered 1% higher than the previous close. 

The India VIX index that measures the volatility in financial markets was the calmest it has ever been on a budget day. As the minister read out the speech, volatility diminished. As soon as she finished her speech, stock indices jumped. The BSE Sensex and the NSE Nifty ended the day over 4% higher than the previous close. Ahead of the Budget, the market had a checklist. The most important thing is about the way the government announces the expenditure priorities.

The stock market likes it when the public money is used for the public good. That means creating new productive physical infrastructure. The government did not disappoint on that count. The Budget outlined a capital expenditure plan that was 34.5% higher than the previous year. That cheered pro-growth investors. Any money utilised for building roads, bridges, airports, rural and urban infrastructure creates jobs. It helps create jobs and boost consumption. 

The other issue of concern was how the government proposes to raise the money to ensure that it has enough to spend on infrastructure. The budget speech announced a borrowing programme not so different from the current financial year. There was a sigh of relief.  The market reaction suggests there are not many concerns about the higher fiscal deficit or the government’s excess expenditure over income. Usually, India’s fiscal deficit management irks foreign investors. However, it appears that markets expected the government to adopt a loose fiscal policy. 

The other end of the Budget is usually the revenue bit. There is not much tinkering with direct and indirect taxes. The government proposes to boost disinvestment and asset monetisation significantly. The Union Budget expects to raise `1,75,000 crore in 2021-22. High on the agenda is the initial public offering of the LIC. The government has also announced divesting ownership through a strategic sale in two public sector banks and a general insurance company. The Niti Aayog will determine more public sector companies to take up for disinvestment. That is perhaps why FICCI, an industry body, was quick to call the Budget outstanding and clear-headed.

There was a fear that the government could introduce a new Covid-19 cess on big businesses, the wealthy and foreign institutional investors. However, the finance minister ended her speech without announcing any significant changes in personal tax rates or direct taxes for businesses. The sharp jump in share prices after the address was primarily an expression of relief about taxation. It is a Budget that works towards boosting capital expenditure and creating opportunities for economic growth. For stock markets, economic growth matters. The year 2020 has disrupted financial assumptions made a year ago. As the economy goes back on track and picks up a growth trajectory, corporate earnings also have to follow suit.

(The author is editor-in-chief at


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