Sensex drops 500 points. Why is the Indian stock market sulking despite FM’s income tax bonanza in Budget 2025?

The Indian stock market declined in intraday trade on Saturday, February 1, despite an income tax relief package that slightly exceeded Street expectations, as announced by Finance Minister Nirmala Sitharaman in her Budget 2025 speech. Finance Minister (FM) raised the exemption limit of income tax, announced a change in tax slabs, which she said will leave more money in the hands of middle-class consumers, boosting household consumption, savings, and investment.

There was a widespread expectation before the Budget that the FM would offer relief to middle-class consumers by increasing the tax exemption limit to ₹10 lakh and tweaking tax rates for different slabs. Sitharaman announced that there will be no income tax up to an income of ₹12 lakhs.

Several FMCG, consumer durables and auto stocks jumped after this announcement, but the broader indices of the market remained subdued.

The Sensex fell nearly 500 points to the level of 77,006.47, while the Nifty 50 declined over half a per cent to the level of 23,346 during the session, looking set to end the winning streak of the last four consecutive sessions.

The selloff was even deeper in the mid and small-cap segments as the BSE Midcap and Smallcap indices declined up to a per cent.

Why is the Indian stock market falling?

Experts pointed out that the Budget 2025 was an overall positive for the market and we are witnessing profit booking now as the focus has shifted back to ongoing concerns surrounding Donald Trump's policies, foreign capital outflow and weak quarterly earnings.

"The fall in the market proves the old adage- buy on rumours and sell on news. Most of the expectations of the market have been met in this Budget so the focus is now back to the prevailing concerns," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

According to Gaurav Dua, SVP, Head - Capital Markets Strategy at Mirae Asset Sharekhan, the negative surprise has come from the shift of focus on government capex in infrastructure development.

"The government is falling short of meeting the central government allocation of ₹11 lakh crore in FY25. The allocation for next year is only ₹11 lakh crore with a reduction in allocation on the defence sector. Hence, it is not surprising that the capital goods, engineering (including defence, railways), and infrastructure companies are sulking post the Budget whereas the consumption-driven stocks are fairing well in today’s trade," said Dua.

"We retain our view that 2025 would be marked with correction in broader markets (SMID space) and sector rotation in favour of IT services, pharma, FMCG and some select banks,” said Dua.

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