Budget 2025: Market Volatility More Certain Than Gains, Says Morgan Stanley

The Union Budget 2025 is expected to bring more market volatility than gains, as per Morgan Stanley's latest report. Historical trends indicate the Budget's influence on short-term market performance has been declining, yet pre-Budget expectations remain critical in shaping post-Budget movements.

As per Morgan Stanley analysis, the market falls two out of three times in the 30 days post Budget. The probability of such a fall rises to 75%, if the market has risen in the 30 days preceding the budget.

Only on three occasions in 32 years has the market been up both pre and post the budget, the latest being 2024, the report said.

This year, India is currently tracking lower, both on an absolute and relative basis, Morgan Stanley said in a note co-authored Ridham Desai. And if it were to hold this performance into the budget day, the chances of a rally post budget increase.

However, several factors could contribute to heightened volatility.

Morgan Stanley highlights the Budget’s potential to set the tone for the government’s policy direction, focusing on reducing deficits, boosting manufacturing through fiscal incentives, enhancing physical and social infrastructure, and fostering agricultural and workforce growth.

The market is expecting direct tax cuts this budget, to boost consumption and raise infrastructure spending. "We think we may get some amount of both," the report stated.

Moderate fiscal consolidation is viewed as ideal, balancing macroeconomic stability with a supportive earnings outlook. This approach, if complemented by RBI's regulatory and liquidity measures, could benefit financials. Morgan Stanley highlights that a significant push in infrastructure spending, potentially reaching 3.5% of GDP, may positively impact industrials.

Sector-specific announcements are also critical. Agriculture, housing, railways, defence, electronics, textiles, auto ancillaries, food processing, and renewables are likely to be in focus, according to the brokerage.

However, Morgan Stanley warns that announcements alone do not ensure revenue opportunities. The budget’s effectiveness will depend on actual spending as a percentage of GDP and how it compares to prior years.