Union Budget 2022: Find out how and why the budget affects stock market

As the Budget Session began on Monday, Finance Minister Nirmala Sitharaman presented the Economic Survey in Parliament. The Union Budget 2022 will be tabled on Tuesday, 1 February.

Usually, the stock market tends to fluctuate during this period. The Union Budget as a crucial event as it results in fluctuations of stock prices, changes the market stance and much more.

If the markets take the budget positively, the stocks will rise. But, if the markets see the Budget 2022 as not in their favour, then the stocks will fluctuate.

Besides, the stock market next week is expected to be volatile for investors because of Union Budget 2022, third-quarter earnings of several companies, macro-economic data announcements and global issues like the Russia-Ukraine conflict. The COVID-19 pandemic is also a major factor that will impact this year’s budget.

How the Union Budget affects the stock market?

• Modification in exemption limit for taxpayers

Modifications in income tax slabs or exemption limits, also affects the stock market. If the exemption limit is increased, it results in more money remaining in the hands of the taxpayer. In order to get more interest, the taxpayers invest the saved amount in stock markets. And, when more taxpayers start investing in the share market, the share market will be on the positive side.

• Change in corporate tax

Corporate tax is a duty paid by any company which meets the conditions mentioned under the Income Tax Act, 1961 and the Finance Rules. The government’s announcements related to corporate tax also have a significant impact on the stock market .

In turn, the change in corporate tax rates increases or decreases the taxation burden on the company. If the Budget decreases corporate tax rate, the burden on the companies automatically decreases, resulting in a higher profit margin. The companies can use the extra funds for expansion and growth, that will ultimately increase the company’s market value and share prices.

• Sector-wise impact

The Central government announces sector-related policies or rules every year through its annual budget. These announcements or new policies affect specific sectors in a positive or negative manner. If the announcements are in favour of the sector, then it will perform well which ultimately reflects on the stock prices. If the announcements are not in the favour of the sector, it will lead to the stock prices declining.

In this Budget, the market expects the Centre to focus on infrastructure while not going overboard on spending.

The market is ready to welcome any major reform announcement, especially related to privatisation efforts of public sector units. It also seeks some tax relief for consumers as long as it does not excessively affect the Central government’s deficit.

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