With the upcoming general elections looming, the recently revealed Interim Budget for the fiscal year 2024-25 has diverged from the typical pre-election pattern. Instead of succumbing to populist measures, the budget showcases a professional and forward-looking approach, indicating the government’s confidence in the upcoming elections and the overall economic landscape.

A standout feature is the government’s adept handling of fiscal consolidation alongside capital expenditure. The unexpected Fiscal Deficit target for FY25, set at 5.1% of the GDP, pleasantly surprised the market, which had anticipated a higher figure. Keeping such an aggressive target has several positive implications for the market.

A lower fiscal deficit implies reduced government borrowing, leading to a diminished demand for bonds. This, in turn, is expected to lower bond yields and elevate bond prices. The direct beneficiaries of this fiscal stance are corporate borrowers, as it reduces their overall interest costs.

Lower borrowing costs would also materially benefit the NBFCs which source their capital from banks. Higher bond prices would mean that the bond portfolios would witness a significant MTM rise and therefore institutions holding bond portfolios would benefit like the banks and life insurance companies.

Apart from the fiscal consolidation, the other part that the market was keenly interested in was capital expenditure. Finance Minister Nirmala Sitharaman announced an 11.1% increase in the Centre’s capital expenditure for FY25, reaching Rs 11.1 trillion. While this growth rate might seem slower compared to the post-pandemic surge, the crucial point lies in the capital expenditure’s share, set to touch 23.3% of total expenditure – the highest since the 1994-95 Budget. This underscores the government’s commitment to public investment-led growth, providing a significant boost to the country’s infrastructure development.The Interim Budget’s continuation of the Pradhan Mantri Awaas Yojana (PMAY) is also noteworthy. The commitment to constructing two crore more houses under PMAY-G, along with a special scheme for urban middle-class families, not only addresses long-standing housing needs but injects vitality into the housing loan segment, propelling growth in the real estate sector. This, in turn, creates a ripple effect, benefiting ancillary industries such as cement, steel, paints, and more.In a broader context, the macro-policy approach reflected in this budget is commendable. The counter-cyclical nature of the policy, initially geared towards injecting growth during the challenging times of the Covid-19 pandemic, now pivots towards a prudent fiscal management strategy. As the economy recovers at a commendable pace, the government’s ability to navigate the fine line between fiscal discipline and sustaining growth becomes crucial for the long-term sustainability of India’s economic trajectory.In essence, the Interim Budget for 2024-25 stands as a testament to the government’s skillful balance between fiscal restraint and growth continuation, setting the stage for a robust and sustainable economic future.

Image 1Agencies

Nifty saw heightened volatility last week due to the Interim Union Budget and Federal Reserve meeting. Closing at 21,854 with a weekly gain of 2.35% the index hit a new peak at 22,127 but faced a pullback forming a shooting star candle on Friday.

Nifty is currently holding above the 20 and 50 Simple Moving Averages (SMA) with the Relative Strength Index (RSI) standing at the 58 level. Technically, immediate support is identified at the 21,500 level while the next significant support remains at 21,200. On the upside, resistance is placed at 22,222 followed by 22,350 levels.

The US and European markets are currently stable and inching higher gradually contributing to a positive sentiment in the broader market.

As long as the India VIX remains below 16 levels, a moderate swing is expected in the index.

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