India: the 2015 Budget and the Stock Market


19 Mar 2018

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The Union Budget 2015-16 was presented by Finance Minister Arun Jaitley on 28th February and was a highly anticipated event for all sections of the Indian society. It was the first budget of the newly formed Government under the leadership of Prime Minister Narendra Modi. The government was formed with full support from the people of India, who considered P.M. Narendra Modi to be a change agent with the widely publicized campaign “Ache Din Aane Waale hain“.

The BJP led campaign received widespread support not only from the masses but also from the corporate and stock market watchers. The stock market was not performing well since the last few years due to loss of investor sentiments, low return on investments and badly performing shares across sectors. On the day of the election result announcement, the stock market shot up to higher levels. This created widespread cheer among the investors and the corporate. They surely wished that better days are coming ahead. Hence the Budget was highly awaited by the business houses and the stock market players with a positive outlook, against the economic backdrop of a still-nascent recovery in the economy.

The stock market response to the budget is often viewed as an important summary statistic of the “quality” of the budget in terms of improving the macroeconomic prospects of the country.

Expectation of Stock Markets

Fuelled by hopes and expectations, the stock market opened higher on the Budget morning. The experts were predicting a volatile market and it sure did not disappoint. Just like any other day, trading started at 9:15ISTand concluded at 15:30 IST.

Analysts were ready to scrutinize measures in the Budget for financing infrastructure projects as well as the government's own capital expenditure on infrastructure for the year ahead. This was the first full fledged Budget of the Narendra Modi government and analysts looked for a roadmap for economic growth for the next few years.

Before the Budget Day

Indian stocks surged on 27 February 2015 after the Economic Survey 2014-15 tabled in parliament by Finance Minister Arun Jaitley stated that the government remains committed to fiscal consolidation and said that there is a scope for Big Bang economic reforms.

Foreign portfolio investors (FPIs) bought shares worth a net Rs 1957.10 crore on 27 February, as per provisional data. Domestic institutional investors (DIIs) sold shares worth a net Rs 491.93 crore on 27 February, as per provisional data.

On the Budget Day

The benchmark index, Bombay Stock Exchange (BSE) Sensex, opened at 29,411.33 points.

The Sensex, which was trading with a gain of over 200 points before Finance Minister Arun Jaitley began his much-awaited Budget speech, swung between positive and negative terrain as he announced different measures.

However, as the budget speech got under way, volatility set in and at 11:59am, markets slipped into the red. After some seesawing through the day, the markets closed with gains, with the equity benchmark Sensex adding 141.38 points or 0.48%., and closed at 29,361.50 points. It raised 141.38 points higher on promise of lower corporate tax rates - logging the first rise on a Budget day in four years. In the previous three sessions on Budget 2014, 2013 and 2012, the Sensex had ended lower.

However, the difference between the days high and low was 678.3 points.

The best performing sector of the day was BSE Bankex, which gained 3.27%, followed by BSE Healthcare at 2.03%. Meanwhile, the worst performing sector was BSE FMCG which fell 4.09%, followed by BSE Consumer Durables, which fell 2.05%.

The broader National Stock Exchange (NSE) index Nifty also moved up by 57.25 points to end the week at 8,901.85, after hovering between 8,751.35 and 8941.10.

To better understand the effect of the Budget on the Stock Market and across the various sectors and companies listed in the Sensex, it is better to understand the major points mentioned in the budget which led to such widespread reactions.

Budget Highlights

Finance Minister Arun Jaitley announced a budget aimed at high growth, saying the pace of cutting the fiscal deficit would slow as he seeks to boost investment and ensure that ordinary people benefit. Mentioning below some of the major highlights from the Budget

  • Fiscal deficit seen at 3.9 percent of GDP in 2015/16. Will meet the challenging fiscal target of 4.1 percent of GDP.
  • GDP growth seen at between 8 percent and 8.5 percent.
  • Expects consumer inflation to remain close to 5 percent by March, opening room for more monetary policy easing.

Market Reforms

  • Propose to merge commodities regulator with SEBI
  • To bring a new bankruptcy code
  • They plan to amend the RBI act this year, and provide for a monetary policy committee
  • To set up public debt management agency
  • Proposes to introduce a public contract resolution of disputes bill.
  • To establish an autonomous bank board bureau to improve management of public sector banks.


  • Monetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6 percent


  • Government defers rollout of anti-tax avoidance rules GAAR by two years. It is ananti-tax avoidanceregulation ofIndia. GAAR to apply prospectively from April 1, 2017.Retrospective tax provisions will be avoided. It was considered controversial because it had provisions to seek taxes from past overseas deals involving local assets retrospectively.


Major highlights were:

  • To abolish wealth tax
  • Replaces wealth tax with additional 2 pct surcharge on super rich
  • Proposed to cut to 25 percent corporate tax over next four years as they consider that corporate tax of 30 percent is uncompetitive
  • FM proposed modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.
  • Extends withholding tax concession on foreign debt purchases by two years
  • Expects to implement goods and services tax by April 2016
  • To reduce custom duty on 22 items


Investment in infrastructure will go up by 700 billion rupees in 2015-16 over last year. It plans to set up national investment infrastructure fund. It also proposes tax-free infrastructure bonds for projects in roads, rail and irrigation project.


It proposed to do away with different types of foreign investment caps and replace them with composite caps & to allow foreign investment in alternative investment funds

Stock Market Reactions

Positive Reactions & the Companies/Sectors Benefitted

The Union Budget 2015-16 presented by Arun Jaitley on Saturday is widely considered a good Budget. It announced many measures that cheered the common man and even industry bodies. India Inc was happy with the budget with most calling it a pro-reform and a positive budget.

  • The lower corporate tax tied with fewer exemptions was accepted to simplify the tax structure and promote investment. Sentiments were lifted after FM announced a cut in corporate tax by 5 per cent to 25 per cent over four years starting April 2016.
  • The government’s focus on investment in the infrastructure sector was also viewed positively by the market In order to boost infrastructure spending, the finance minister proposed to reintroduce tax-free bonds. These are secured, redeemable, non-convertible debentures issued by government entities to mobilize funds needed for infrastructure development. This should help attract savings looking for stable long-term risk-free return. Among other measures, foreign investors have been allowed to invest in alternate investment funds.
  • Besides, the proposal to defer applicability of General Anti-Avoidance Act (GAAR) by two years, April 1, 2017, also boosted buying.
  • Among the 30 Sensex scrips, Axis Bank topped the gainers by surging 8.1 per cent. Government's initiative to bring in a Comprehensive Bankruptcy code for the ease of doing business by 2015-16 is a big welcome step from the banking sector perspective.
  • Stocks in banking, healthcare, auto, oil and gas and IT rose. Major Sensex gainers were Tata Motors, ICICI Bank, Dr Reddy, Hindustan Unilever, Cipla, GAIL, Tata Steel, HDFC Bank, Infosys, RIL and M&M. They gained between 1-3 per cent.
  • Meanwhile, foreigners bought shares worth a net Rs 1,957.10 crore on the day.

Says KPMG India CEO Richard Rekhy: “The Finance Minister has come out with a pragmatic Budget which is directionally focused at achieving growth and keeping the fiscal prudence in mind. The focus is on ease of doing business in India and increased infrastructure spend. Measures like New Bankruptcy legislation, startup entrepreneur’s funds, GST rollout by FY 2016, deferral of GAAR will definitely support the cause of ease of doing business in India.”

Negative Reactions & the Sectors/Companies Impacted

Media companies:Companies in the media space like PVR, Eros, Dish TV and Hathaway could be affected by the change in service tax rules. Now, the entertainment sector would be brought under the service tax net.

Metal and mining stocks: The Budget announced two measures that could directly impact metals and mining companies like Hindalco, Sesa Sterlite and Kalyani – the increase in clean energy cess on coal to Rs 200/tonne from Rs 100/tonne, and the hike in basic custom duty on metallurgical coke to 5% from 2.5% earlier.

PSU banks: The public-sector banks like PNB, Bank of India, Syndicate Bank and Dena Bank are heavily dependent on government finances.The Budget announced that the government will infuse Rs 7940 crore in PSU banks in the next fiscal. The Budget indicated the setup of a Holding Company for PSU banks, which would give them more freedom and control. It also indicated that PSU banks could issue more stocks in the market. This will help them raise money by themselves, thus lowering their dependency on government capital.

ITC, Cigarettes Industries: The government usually reduces taxes for essential goods and increases tax burden on goods which are not essential and/or harmful. One such product which sees high taxation is cigarettes. The Budget further increased tax burden by hiking excise duty in certain cigarette products by 25% and 15%. This would make the cigarettes costlier from April 2015. Any rise in price negatively impacts demand and thus corporate profits. Shares of cigarette major ITC fell 8 per cent following the Budget proposal to increase excise duty on cigarettes.

The government came down heavily on smokers and tobacco consumers in Budget 2015-16 with a steep increase in excise duty.Citing need for promotion of public health, Finance Minister Arun Jaitley on Saturday said: "Excise duty on cigarettes is being increased by 25 percent for cigarettes of length not exceeding 65 mm and by 15 percent for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos."

Plastic Industries : The government wants to deter plastic consumption to reduce its harmful effects on the environment. For this reason, the Budget increased excise duty from 12% to 18% on plastic products (polymers). This would make plastic products costly.


Budget 2015 operates on some clear themes, and Government explains not just the challenges it faces but also the key ideas it is banking on. Declining agricultural income, the need for increasing investment in infrastructure, the need to remain on the fiscal consolidation path, a perceptible decline in manufacturing and the impact of the greater devolution of taxes to states have been highlighted in this Budget as the major challenges.

This Budget was expected to be a ‘Big Bang’ Budget. It was expected to announce a slew of reforms to get India back on the growth path. While the Budget did announce small-scale reforms for the industries, it did not mention any big reforms. As a result, market benchmarks Nifty, Sensex slipped back into the red after the Budget speech. They were earlier up 1% because of the deferral of GAAR and a cut in corporate tax by 5%.

Overall, Budget 2015 shows the Government's commitment towards increasing competitiveness of the Indian economy while managing the expectation of domestic corporate and the common man too. The real test lies in how efficiently the new government would be able to execute the ambitious proposals brought forth in Budget 2015 and how it helps in the bull run of the Stock Markets.


  1. The Hindu : Union Budget Live

  1. Business Today : Stock Market Sensex on 28th February


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