Tax Exemptions May Lead to Increased Investor Participation in Markets: Experts The much-awaited tax relief for the Indian middle class, which exempts individuals earning up to INR 12 lakh, looks set to ensure higher disposable income, leading to investments for the future and increased participation in primary and secondary markets, leading to better capital formation overall.
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Initiatives such as enhanced credit access through credit guarantee schemes and dedicated funds for early-stage investors will encourage innovation and competitiveness, evolving the sector further, said Mahavir Lunawat, Group Founder and Managing Director, of Pantomath Financial Services Group.
The much-awaited tax relief for the Indian middle class, which exempts individuals earning up to INR 12 lakh, looks set to ensure higher disposable income, leading to investments for the future and increased participation in primary and secondary markets, leading to better capital formation overall.
India has also emerged as one of the world; 's major IPO hubs for both domestic and international companies. According to Pantomath, the number of investors in markets increased from 4.9 crores in FY20 to 13.2 crore as of December 2024.
"The momentum anticipated in the next two years in the capital market is thrice what it has achieved in the last 5 years. There have been 851 initial public offerings (IPOs) in the last 5 years, and estimates suggest that there will be over 1,000 IPOs in the next two years. Market confidence is continuing to rise as India's market capitalization has topped US$5 trillion, ranking it fourth in the world after the US, China (including Hong Kong), and Japan. The additional liquidity in the hands of the middle class via tax savings will be a strong pillar to drive the capital market forward," said Lunawat.
Deepak Ramaraju, Senior Fund Manager, Shriram AMC said that the cut in personal income tax may lead to higher discretionary spending, and sectors like auto, consumer durables, retail, travel and Tourism, and selected FMCG companies may outperform the broader markets.
The senior fund manager said even though the budget did not add any negativity to the capital gains, the markets look to remain buoyant for the medium term.
"The finance minister has tried to do a balancing act. The demand side of the economy is supported especially the agriculture, manufacturing, and SMEs are provided with supportive measures, not many tweaks to custom duties and boost to exports. This should support employment and consumption which has taken a back seat in the last 2 quarters. The rural demand may marginally improve further," said Ramaraju.
The Union Budget of 2025 has shifted focus from relying primarily on state investment to a more balanced approach, promoting consumption and driving private sector investments.
The government has kept capital expenditure to a modest INR 11.2 lakh crores, which may seem concerning at first glance, but should yield positive outcomes if focus on execution is maintained, expressed Vinit Sambre, Head - Equities, DSP Mutual Fund.
"Various measures aimed at improving the ease of doing business—such as simplifying regulations and promoting the 'Make in India' initiative—should eventually stimulate private investment. Additionally, putting more money into the hands of individuals through tax savings is expected to benefit consumer-oriented businesses," said Sambre.
