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Below the Quote on Weekly Market by Krishna Appala, Sr. Research Analyst, Capitalmind Research

“This week saw two major policy moves that could significantly impact India's economic trajectory—the Union Budget 2025, which introduced tax cuts to boost consumption and investment, and the RBI’s 25 bps rate cut, signaling a shift towards monetary easing. These measures collectively aim to strengthen economic growth while maintaining fiscal discipline. On the markets front, Nifty 50 is up 1%, Nifty Midcap is up 0.9% and Smallcap index is up 0.7%. 

The Union Budget 2025 provided long-awaited tax relief, putting more money in the hands of consumers. Individuals earning over ?24 lakh annually will now save an additional ?1.1 lakh per year, while those earning up to ?12 lakh per year will effectively pay no income tax. With an estimated ?1 lakh crore expected to flow back into the economy through these tax cuts, the move is likely to encourage higher discretionary spending and savings. Despite these tax reductions, the government has kept its fiscal consolidation efforts intact, setting the FY26 fiscal deficit target at 5.3% of GDP, down from 5.8% in FY25. The budget also prioritizes infrastructure development, MSME credit support, and investments in inland shipping, nuclear and solar energy, and electronics manufacturing to drive long-term economic expansion.

Alongside the fiscal push, the RBI’s decision to cut the repo rate by 25 bps to 6.25% marks the beginning of a potential rate-cut cycle after over two years of unchanged policy rates. This follows a 50 bps CRR cut in December 2024 and a ?60,000 crore bond purchase program, all aimed at improving liquidity in the banking system. With CPI inflation at 5.5% in December and expected to moderate further to 4.5%-4.7% by January 2025, the central bank has space for further cuts. Lower interest rates will make borrowing more affordable, benefiting sectors like housing, auto, and MSMEs while also improving credit availability for businesses. With GDP growth projected at 6.4% for FY25, additional rate cuts—potentially another 25-50 bps in 2025—could further stimulate economic activity.

The combination of tax cuts and rate cuts creates a favourable environment for economic growth, but its success depends on how effectively tax savings translate into higher consumption and investment. The government’s focus on fiscal discipline alongside an investment-led growth strategy, coupled with easing monetary policy, suggests a more balanced approach to economic expansion. If inflation remains under control, India could be well-positioned for a steady recovery, making this a crucial period for businesses and investors to capitalize on emerging opportunities.”

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