The Centre’s decision to maintain its Capital Expenditure growth is set to account for 23 per cent of total government spending and 3.4 per cent of the GDP, signaling a strong focus on infrastructure development and economic expansion. The Union Budget for the fiscal year 2024-25 reflects a commitment to economic stability and growth through significant capital expenditure investments, with the projected central government fiscal deficit set at 4.9 per cent of GDP, lower than market expectations. Mahesh Nandurkar from Jefferies expressed confidence in the government’s trajectory, suggesting that the fiscal deficit could drop below 4.5 per cent in the next fiscal year, benefitting the bond market and Indian currency. Despite concerns about increased capital gains tax rates, the market reaction has been relatively muted.
In the stock market, the budget’s most significant development was the increase in capital gains tax rates, with short-term capital gains tax rising from 15 per cent to 20 per cent and long-term capital gains tax from 10 per cent to 12.5 per cent for investments held for more than a year. While there were concerns about the impact on the asset management industry, listed asset management companies experienced minor fluctuations, with a brief decline followed by a rebound. The Jefferies report also highlighted political stability as a key factor supporting market confidence, with expectations that Prime Minister Narendra Modi will maintain his coalition government for the full five-year term, reinforcing investor sentiment and economic policies.
The report further explored the gold reserves of the original five BRICS members–Brazil, Russia, India, China, and South Africa, which collectively increased their official gold reserves by 428 tonnes (8 per cent) in the first half of 2024 to reach a total of 5,687 tonnes. Notable contributions came from China and India, with China’s reserves rising by 16 per cent to 2,264 tonnes and India’s reserves increasing by 10 per cent to 831 tonnes. However, despite these increases, the BRICS nations’ gold reserves still trail behind the United States and the Eurozone. This data indicates a growing interest in gold reserves among emerging economies as a means of diversifying their assets and ensuring economic stability.
Overall, the Centre’s focus on maintaining Capital Expenditure growth signals a commitment to infrastructure development and economic expansion, with the Union Budget for the fiscal year 2024-25 reflecting efforts to ensure economic stability and foster growth through substantial capital expenditure investments. Despite concerns about increased capital gains tax rates, the market reaction has been relatively muted, with political stability and growing gold reserves among BRICS nations further reinforcing investor confidence and market conditions. The positive outlook on government trajectory and economic policies is expected to benefit the bond market, Indian currency, and overall investor sentiment.
