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Stock Market & Budget 2014
There’s anticipation in the air!
Sensex & Nifty
have scaled new peaks...
All eyes are now on the
Budget 2014 & Finance
Minister Mr. Arun Jaitley
The future direction of
the stock market is
significantly dependent
on the union budget.
Here are 4 pointers
that explain stock
market expectations of
Budget 2014
#1 Fiscal Deficit
A high fiscal deficit leads to a higher borrowing by the
government. When that happens, it competes with businesses
for money in the market. This keeps interest rates high and
stokes inflation.
Government’s expenditure
What is Fiscal Deficit?
Government’s earnings
What to watch?
A key thing to look for in Budget 2014
would be an announcement relating
to the Fiscal Responsibility and
Budget Management Act.
Markets will look for specific targets
to bring down the fiscal deficit over
the next few years.
What will be the impact?
A lower fiscal deficit in FY15 will ensure
that the government borrowing does not
increase sharply.
RBI would be able to, then, lower key
borrowing rates. Stock markets thrive
when interest rates fall.
#2 Productive Spending
What needs to be done?
Subsidies on fuel, fertiliser and food form a large chunk of the
government’s spending. To control the fiscal deficit, the
government may have to cut this expenditure.
However, it needs to continue with productive spending on
aspects like healthcare, education and physical infrastructure.
What to watch?
The capital expenditure on infrastructure in Budget 2014-15
would be watched closely by the stock market. A lot of
businesses rely on the spending by the government.
#3 Boost Revenue
How can they boost revenue?
Fiscal deficit can be controlled through an increase in revenue
too. The stock market expects the new government to
implement the goods and services tax (GST), which could
lead to a rise in revenue. This can also help the economy
grow faster than the current 5%, over the long-term.
What to watch?
The stock market would look at practical timelines for
implementation of goods and services tax. They would also
want the government to implement the Direct Tax Code that
simplifies the tax structure for individuals and companies.
#4 Disinvestment
What happened in the past?
The National Democratic Alliance pushed for disinvestment
aggressively between 1999 and 2004. They had a cabinet
minister in Mr. Arun Shourie to steer the initiative then.
However, in this regime, there is no disinvestment minister.
What to expect this year?
The stock market expects this government to do much better
on disinvestment than the previous United Progressive
Alliance regime. In Gujarat, the government in the past has
empowered public sector companies and turned loss-making
ones around.
What to watch?
The stock market expects greater autonomy to public sector
companies. In the Budget, investors would look at planned
selloff of stakes in public sector companies and the amount
the government expects to receive.
Final Note
In a nutshell, investors are looking forward to steps to rein in
the government spending thereby controlling the fiscal deficit.
At the same time, they would look for a boost in revenue by
implementing GST and disinvestment.
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The content/illustrations shared in the presentation is based on information available from
the past budget(s)
