The Union Budget announced on 01-Feb was not just counter-cyclical, but also it was audacious. Giving away tax saps to the consumers worth ₹1 trillion is very tough, especially since it is also going to impact tax revenues over the years. By making income up to ₹12.75 lakhs fully exempt from tax, the Union Budget has offered a lifeline to Indian consumers; stuck with high inflation and low savings at their disposal. That had impacted the consumption story, so this was the key! 

A cursory reading of the MPC minutes clearly underline that monetary policy in February had tried to magnify the effect of the Union Budget on consumption, by cutting repo rates by 25 bps. This was supposed to reduce the cost of funds, and also reduce the EMIs payable by the consumers to the banks. We now have a delectable combination wherein, the taxes have been cut drastically, sharply reducing the tax impost on the masses; as well as lower cost of funds. Hence, it is rather surprising that stock markets reacted negatively to these sops. Here is why stock markets fell in last 3 weeks despite this consumption boost offered. 

Now, that is the million-dollar question. If the budget is favorable and the credit policy is also positive, then why is the consumption boost not translating into stock market returns on these stocks? There are several reasons for the same. Firstly, most of the pressure is coming from global factors. It has to largely do with the punitive tariff regime being laid out by Donald Trump. As of now, the full impact on India is not too clear, but it is apparent that India is not going to be spared some of these export tariffs. Secondly, the Indian rupee continues to be very weak; and that is putting off FPIs. Thirdly, domestic liquidity is still a major challenge and it is tight, despite the RBI infusing billions of dollars. 

The first signs of lack of confidence in the current markets was visible in the SIP stoppage ratio for January 2025, that had crossed 109% for first time. Be it institutional investors, HNIs, or retail investors; the lack of confidence is the key reason. One only had to look at the IPO of Hexaware. Although, the ₹8,750 crore was oversubscribed 2.7 times, the thrust came entirely from QIBs, even as the retail and HNI portions were steeply undersubscribed. Consumption boost is a good starting point, but it needs the support of consumer confidence to be able to translate into demand and stock price action. For now, that is missing!