Budget 2021 Affecting the Share Market
The 2021 Budget was put together in the midst of a challenging global and domestic environment owing to the persistent COVID-19 Pandemic. The ensuing worldwide recession has had crucial implications for our economy. Capital expenditure in 2021 remains focussed on the fulfillment of as many ongoing projects as possible, rather than the commencement of new ones. A Budget is the Government’s statement of policy for the financial year. Budget announcements do influence the stock prices of those companies who will be impacted favourably or otherwise by the proposed changes in the policies. Generally, volatility in stock prices can be seen to a great extent.
Budget 2021 has proposals that bring cheer to the Dalal Street but have also announced measures that are aimed to execute the clean-up of the bad loans and asset monetisation in a well-coordinated way by declaring the setting up of Asset Reconstruction Companies (ARCs) to deal with Non Performing Assets (NPAs). Due to the budget, a positive session is witnessed on Indian stock markets. Both Nifty and Bank Nifty have shown a strong move and closed the day with gains of 5% and 8% respectively. Strong breakout is observed in the Bank Nifty. Even Nifty has noticed a small falling trend line breakout.
After the Budget 2021 presentation on Monday, the Sensex zoomed over 750 points and the Nifty crossed the key 14,500-level in the opening conference on Tuesday, a day after the Union Budget which outlined a slew of manoeuvres to pull the economy out of the pandemic-induced slump. The BSE gauge Sensex was trading at 49,352.27, witnessing a strong rally of 751.66 points or 1.55 per cent in opening deals.Likewise, the NSE barometer Nifty was higher by 222.65 points or 1.56 per cent at 14,503.85 in early trade. In the Sensex pack, all shares were trading in the green barring HUL. On 1st Feb 2021, Sensex closed up 2476 points or 5.35% to 48,762, while the Nifty 50 ended at 14,331, up 696 points. The FM has delivered a distinctive Budget, wherein, all the right measures have been put forward to speed up growth. The move of rationalization of spends, minimal changes to the direct and indirect taxes and no additional taxes will be well received. Higher spending will kickstart a virtuous cycle of growth. The augmentation in spending will be funded by higher borrowings which has the potential to create an upward pressure on inflation and interest rates a few months down the line. The Union Budget 2021–22 has provisions to elevate the demand and supply of affordable housing. While the extension of the deduction on payment of interest on purchase for affordable housing by another year will encourage home buyers to invest in their own properties. BSE Sensex jumped 2,265 points or 4.89% to 48,550, while the Nifty 50 was nearing the 14,300 mark. IndusInd Bank zoomed 15%, ICICI Bank 12.07% while Bajaj Finserv jumped over 11%.
The real estate industry was expecting growth measures from the Union Budget. Given the current situation, the Finance Minister has presented a balanced budget. The budget was primarily focused on the infra and healthcare sector. Steps like a 1-year tax holiday for affordable housing projects and a 1-year extension for an additional deduction of interest up to Rs 1.5 lakh on loan for affordable housing will benefit all stakeholders of the industry and boost investments. Relief on TDS for dividend on Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will boost investment in these instruments. All sectors are trading in the green zone except healthcare.
Stock markets react differently to budgets even on an individual sector basis. For instance, the Tech sector benefits from anything that involves lower direct taxes, subsidies to semi-govt companies, etc. We have perceived a massive rise in these stocks through the early part of the last few years.
