Market and Budget 2025: Where should investors focus post Budget? 5 experts answer

Budget 2025: The Indian stock market experienced high volatility on Saturday, February 1, following the FY26 Union Budget announcement by Finance Minister Nirmala Sitharaman. While the budget introduced major changes in income tax slabs, shifting more money into the hands of middle-class consumers, market sentiment remained mixed due to concerns over government capital expenditure (capex) allocation.

A key takeaway from the budget was the increase in the income tax exemption limit to ₹12 lakh, a significant move aimed at boosting household consumption, savings, and investment. There had been widespread expectations that the FM would raise the tax exemption limit to ₹10 lakh and adjust tax rates across slabs, but the relief was even higher than anticipated. However, market experts pointed out a negative surprise—the government’s reduced focus on infrastructure capex, as it fell short of the ₹11 lakh crore target for FY25.

Following the budget speech, the Sensex plunged nearly 500 points to 77,006.47, while the Nifty 50 declined over half a percent to 23,346. However, as investors absorbed the details of the announcement, the indices recovered losses and turned green later in the session.

Where Should Investors Focus Post-Budget?

Despite the initial market reaction, analysts believe the budget remains largely positive for investors, with sector rotation expected in the coming months.

According to Samco Securities, the government’s modest increase in capex from ₹11.11 lakh crore last year to ₹11.2 lakh crore this year was below expectations. “The government’s focus had been on infrastructure and capex, but political compulsions and freebie politics seem to have taken priority. With such a modest increase, railways, defense, and engineering sectors are likely to take a hit. On the other hand, FMCG, auto, and consumer durables could gain traction going forward,” Samco Securities noted.

Gaurav Dua, SVP & Head of Capital Markets Strategy at Mirae Asset Sharekhan, also pointed to concerns over capex allocation. “The government has not met its ₹11 lakh crore central capex target for FY25, and the allocation for next year remains stagnant at ₹11 lakh crore. Moreover, the defense sector has seen a reduction in allocation. This suggests that while the government is prioritizing consumption-driven growth and welfare, it is leaving infrastructure development to the private sector. The PPP (Public-Private Partnership) model is expected to play a larger role, but this shift has led to weakness in capital goods, engineering, and infrastructure stocks.”

Dua added that 2025 could be a year of broader market correction, especially in small and mid-cap (SMID) stocks, while IT services, pharma, FMCG, and select banking stocks could outperform.

Meanwhile, Nishith Maheshwari, Head – Digital Business Loans at InCred Finance, emphasized the positive impact of tax reforms on consumption-driven sectors. “The significant changes in personal taxation will provide a major boost to D2C brands, quick commerce, and FMCG. Additionally, increasing loan limits up to ₹20 crore is a substantial advantage for new-age companies. Overall, this budget presents a strong growth outlook, with a clear focus on simplifying tax regulations and enhancing the ease of doing business,” he said.

Motilal Oswal, Group MD & CEO of Motilal Oswal Financial Services Ltd, stated that the Union Budget 2025 strikes a fine balance between growth and fiscal prudence. With the fiscal deficit pegged at 4.4 percent, below the long-term target of 4.5 percent, he believes this will have a positive impact on the economy. The budget’s focus on rural farmers and low-income groups is expected to boost consumption in both the short and long term, aiding economic recovery. The planned capex spending of ₹11.2 lakh crore aligns with market expectations, while the emphasis on MSME manufacturing is a positive for multiple sectors.

Sectorally, he highlighted that the budget favors consumption-driven industries such as FMCG, auto, and footwear. Additionally, he noted that the reduction in income tax for the middle class would provide further economic stimulus. Overall, Oswal remains optimistic about the market’s medium to long-term prospects, citing the budget’s pro-growth and investment-friendly measures.

Anshul Arzare, MD & CEO of YES SECURITIES, described the Union Budget 2025 as a game-changer that lays the groundwork for financial development and inclusive growth. He emphasized that the tax code overhaul is a transformational move, boosting disposable incomes and driving demand in consumption-led sectors such as financial services, automobiles, and FMCG. Arzare highlighted the ₹10,000 crore Fund of Funds for startups and the expanded MSME credit guarantee scheme as key fiscal incentives that will accelerate entrepreneurship and infrastructure growth, reinforcing the government’s commitment to fostering a stronger economic ecosystem.

Overall, Budget 2025 has set the stage for shifts in market dynamics, with consumption-driven sectors emerging as potential winners, while capex-heavy industries may face near-term headwinds. Investors are now closely monitoring global factors, including US policies under Donald Trump, RBI’s stance on interest rates, foreign capital flows, and upcoming corporate earnings, to gauge the broader market outlook in the coming months.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.