How Budget 2019 might impact stock markets, investment practices

When the Narendra Modi-led NDA government had returned to power in May, the stock markets had welcomed it with open arms with both Sensex and Nifty touching record highs. The investors showed positive sentiment as retention of power by NDA government meant continuation of policies. Now, the government faces its first litmus test in the form of the Union Budget which is set to be presented by Finance Minister Nirmala Sitharaman today. Both markets as well investors should keep a close eye on the Budget announcements. 

Rajesh Cheruvu, CIO, Validus Wealth believes that while much of Government spending seems in place (murmurs of fiscal stimulus), sources of funds seem paramount. He said that a clear roadmap to Direct Tax Code (hint: Wealth Tax) and blueprints for monetization of public assets are to watch out for. 

"Usual suspects on expenditures: bank recapitalization, any capitalisation of NHB and SIDBI to meet current refinancing needs of housing and SME sectors, infrastructure outlays and agriculture. Job creation being the need of the hour, consolidation of legacy labour laws and adopting global practices are also crucial," he said. 

On Thursday, the broader NSE Nifty closed 0.25% higher at 11,946.75, while the benchmark BSE Sensex settled 0.17% firmer at 39,908.06. The Nifty PSU bank index, which tracks state-owned lenders, finished the session 1.28% higher.

"Loosening the grip on fiscal prudence might not be seen harshly, given the weak macro. Market behavior has been bordering “irrational” in Jun-19 with volatility in well-known HFCs and NBFCs, a certain airline of yester-year seeing triple digit intra-day gains and a rather large agro-chemical company getting hammered by African Swine fever. Such volatility could lead authorities to promote fair price discovery lest malpractices arise," Cheruvu said.