For Indian stock market investors, the devil in Budget presentations has always been in the detail.

Past ‘dream’ Budgets which have seen the Finance Minister’s speech greeted with cheers from the gallery, have given way to a more sober mood as investors have discovered provisions relating to taxation of foreign portfolio investors or changes in personal taxation lurking in the Memorandum.

Union Budget 2023, too, seems to have followed this pattern to some extent.

The Nifty 50 which stayed upbeat throughout the budget speech, with gains of 100-200 points, lost the momentum as gains later in the trading session, as more details on the personal tax and sector specific proposals came to light.

No nasty surprise for bond market

From a big picture perspective, investors can take heart from the fact that the headline numbers in the Budget had no big shocks to offer to bond or stock market investors.

Podcast | Budget 2023: How was it for bond market investors?  Podcast | Budget 2023: How was it for bond market investors?  

Expectations of the government continuing to provide a capex push to the economy were met, with the capital outlay rising to a generous ₹10 lakh crore for FY24, from the revised estimates of ₹7.28 lakh crore spent in FY23.

The FM also reiterated that, after taking State grants et al into account, the total firepower on capex unleashed by the Budget would be ₹13.7 lakh crore. This is good news for the economy which is currently leaning quite heavily on its investment leg to nudge up growth.

Two, in keeping with trends in the last couple of years, the Budget forecasts on revenue growth, expenditure growth, nominal GDP et all appear fairly realistic, reducing the scope for the fiscal deficit or any other metrics to throw up nasty surprises by the fiscal year-end.

The Budget has assumed a nominal GDP growth of 10.5 per cent for FY24, which is attainable given that real GDP projections for FY24 are now in the 6 to 6.8 per cent range. Not only has the Centre kept to the fiscal deficit red line of 6.4 per cent for FY23, it has reduced its projection to 5.9 per cent FY24.

There were no shockers either in the government announcing gross borrowings of ₹15.4 lakh crore and net borrowings of ₹11.8 lakh crore. The expenditure details suggest subsidy a good balance between continuing high-quality spending to prop up the reviving economy and yet consolidating its finances enough to get back to the deficit target of 4.5 per cent by FY26. The projected 12 per cent increase in tax revenues for FY24 appears attainable.

Three, despite being the last full pre-election budget, the FM has refrained from going down the path of populism, effecting sharp cuts in doles such as subsidies while doubling down on infra spending which can only pay off in the long run. Equity investors ought to heave a sigh of relief that the standardisation of the long-term capital gains tax regime across assets, which would have meant a hike in tax on equity gains, has been mercifully left off.

Give some, take some for equities

But the details that led to these gains petering out in the latter half of the trading session could be threefold.

One, a study of the memorandum suggests that the government is going all out to plug any and all taxation loopholes that allow investors to arbitrage between different asset classes. The introduction of TDS on listed NCDs, the promise to tax market-linked debentures, the ₹10 crore cap on tax breaks for capital gains reinvested in residential property and the decision to tweak Holy Cows such as section 10 (10D) to ensure that maturity proceeds from high-value insurance products are taxed, are moves in this direction.

Two, the fact that the FM has chosen to focus all her personal tax concessions – from wider slabs, to a lower peak tax rate – only on users of the new tax regime, suggests that individual taxpayers need to be prepared to give up their current savings and investment-based exemptions, to enjoy lower tax breaks in future. Beyond this, the budget largely ignored the long wishlists of individual taxpayers.

Three, the non-populist and non-expansionary tone of the Budget also means no direct stimulus to private consumption or revenge spending, which seems to be petering out after a post-Covid surge.

However, if the Budget had nothing very positive to offer stock markets, it had nothing very negative either (except for insurance stocks). That this year’s Budget caused barely a ripple in bond prices suggests that the Budget neatly met all market expectations on the size of the deficit and borrowings programme, which usually throw up nasty surprises. This should please debt investors, bank depositors and small savers (who’ve won some concessions) who make up a larger constituency than equity investors in India.