Budget 2024 | Fiscal deficit and capex numbers hold the key for market sentiment

In the upcoming Budget, all eyes are on the fiscal deficit, a key indicator that has sparked a divide among market experts. While some predict a base case scenario of a reduced fiscal deficit to 5.3%, optimists are leaning towards a 5.5% deficit. The government's commitment to bringing the deficit down to 4.5% by FY26 is a central argument, with proponents suggesting that lower deficits in the coming fiscal years will curb potential inflation caused by high growth.

Amid pre-election expectations, the optimists assert that the Budget may carry populist promises, potentially leading to a higher fiscal deficit. This view gains strength as foreign funds are poised to invest a substantial $25 billion in Indian government bonds due to index inclusion, providing a financial cushion for the government's expenditure plans.

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Another critical number to be closely monitored is the capital expenditure (capex), which witnessed a remarkable 35% growth in FY24. The baseline expectation is a more conservative 10% growth this time, maintaining it at 3.2% of GDP, akin to the FY24 levels. However, optimists, exemplified by Citibank, project a 20% increase in capex to Rs 12 lakh crore. If true, this could spell positive outcomes for construction and railway company stocks.

For a comprehensive analysis and expert insights, watch the accompanying video