With just a day left for the new finance minister Nirmala Sitharaman to present her maiden Budget in the Parliament, the stock market is looking forward to the event with optimism, especially for key measures that the BJP-led government could announce to push the economic growth.

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Shailendra Kumar, co-founder and CIO, Narnolia Financial Advisors, said, "There is liquidity crisis, issues related to non-banking financial companies (NBFCs) and investment cycle has not picked up for quite a few quarters. The monetary easing we have seen from the Reserve Bank of India (RBI) in the last two policies; it is time that the fiscal policy also gets into a clear cut growth mode. This Budget is important for the market as we look forward to a good amount of infrastructure capex from the government. There is a need for a good fiscal policy to support the monetary easing that is going on. The kind of buoyancy missing in the economy has to come from the government side."

According to him, a little slippage in fiscal deficit is "fine" on account of higher spending.

What capital markets expect in this Budget
  1. Cut in LTCG/abandoning LTCG  
  2. Rationalise Dividend Distribution Tax  
  3. Raise exemption limit for income tax from Rs 2.5 lakh to Rs 3 lakh  
  4. Cut tax rates for corporates  
  5. Sticking to 3.4% fiscal deficit target

"The market will react negatively or positively depending on whether the spending is on account of capex activity or revenue expenditure such as sops and subsidies," he said. He expects the Nifty to hover between 11,800 and 12,000-level till the Budget on July 5, unless there is any major global occurrence.

Teresa John, research analyst, Nirmal Bang Equities, said "We expect fiscal prudence over excessive populism in Union Budget 2019, with the government's focus on bringing down the cost of capital. Fiscal deficit for FY20 is likely to be pegged at 3.5% of GDP, a tad higher than the 3.4% of GDP targeted in the Interim Budget. This is due to revenue collection falling short of optimistic targets set in FY19."

According to her, while revenue growth is unlikely to be significantly different from that budgeted in February, the absolute target could be lower.

"We expect measures to boost rural consumption. At the same time, the government's thrust on infrastructure and capital spending will prevent them from cutting back on capital expenditure. We also expect some tax sops for the middle class in order to boost consumption. This may be in the form of a higher exemption limit or the introduction of a 10% tax bracket between the current 5% and 20%," John said.

Amar Ambani, president and research head, YES Securities concur that the government is expected to persist with reasonable levels of a deficit on the fiscal front, as indicated in the earlier budget.

"The reassurance on sticking with the path of fiscal prudence in the years ahead will be equally important. The next on the agenda would be the much-needed boost to economic growth. Towards this front, the most pertinent measure would be providing capital buffers to make liquidity widely available," he said.

Meanwhile, withdrawal of long term capital gain tax and reduction in corporate tax would cheer the market up, feel analysts.

According to B Gopkumar, ED & CEO, Reliance Securities said, a clear five-year road map on tax reforms, especially corporate tax rates, and measures to bring the stuck capital back into the production process by fast-tracking the resolution of non-performing assets of the banking sector will go a long way in reviving the incremental private capex and growth of the economy.

"Withdrawal of long-term capital gains tax would be cheered by the market. This would lead to higher equity participation by companies and help in channelising household savings into the economy," Gopakumar said.

Kumar of Narnolia, on the other hand, said there are about five taxes levied on the stock market and he does not expect much changes in those tax structures. Rather, he expects some rationalisation in personal taxes, and looks forward to a reduction in corporate taxes, which will be intrinsic for the corporate to come out with their capital expenditure plan, he said.

In Budget 2015, the government had promised to bring down the corporate tax rate from 30% to 25%. Consequently, the tax rate for enterprises with turnover up to Rs 250 crore was reduced to 25%.

John of Nirmal Bang, however, said, "Given the significant shortfall in revenue collection, the move to reduce the corporate tax rate for large corporations may be put on the back burner."

Ambani, too, said big investment stimulus through the Budget can come only after tax collection rises materially.

"Simplification of taxes may still be done in some areas but to reduce corporate tax directly, which is 65% of direct tax collection, looks difficult this year," he added.

Ambani expects Nifty to inch upwards to 13,000 in 2019.