On the back of exit poll predictions that favour Aam Aadmi Party (AAP) at Delhi editions, markets have been nervous with a negative bias. It is unusual to see a fall in key market indices in pre-budget times, especially when macro-economic factors are supportive.

Unlike last few budgets which were presented amidst tough economic conditions, the upcoming first full-budget of the NDA Government would be presented on a much confortable backdrop. High inflation along with high fiscal and current account deficits had overshadowed last few budgets. However, for now twin deficits do not seem to be as worrying as they appeared in the past. Inflation has also come down considerably giving some relief to market participants. Globally, crude oil prices have come down nearly 50% over last 1 year providing windfall gains to countries like India that depend heavily on imports. This further gives comfort to the Government while drafting economic policies. Having said this, many fear that the twist of election results in Delhi may change the tone of the Budget. It is also believed that, defeat of BJP in Delhi may force the Government to take some populist measures keeping in mind Bihar assembly elections to be held later this year.

PersonalFN is of the view that, the upcoming budget will be the litmus test for the Modi-led-NDA Government. So far, the markets have been resilient despite of expensive valuations and ordinary performance of corporate Inc. However, markets may lose substantial ground if the budget fails to meet expectations of investors.

Top 5 things on the budget wish-list of the markets

Finance Minister has indicated that the upcoming budget may roll out second generation reforms with an aim of promoting economic growth. This has already given rise to the expectations of investors.

Following are the areas where the markets anticipate a significant emphasis of the Government in the forthcoming budget which is scheduled to be presented on February 28, 2015.

1. Efforts to encourage the revival of investment cycle: Weak investment cycle and lesser capacity additions are significantly affecting the performance of some key sectors in capital goods and consumer goods industries. To facilitate higher growth, it is important that, investment cycle revives fast. The market would be hopeful that the budget would provide adequate incentives to improve investment climate.
   
   
2. Favourable policies for industries operating in manufacturing and infra sectors: The NDA Government has recently introduced, "Make in India" programme which aims at making India a manufacturing hub. The Government has already shortlisted 25 industries for boosting manufacturing activities. Markets may anticipate the Government to further announce favourable policies for these industries in its full budget.
   
   
3. Stricter financial management: Markets may expect that the Modi-led-NDA Government may announce lesser subsidies, while spending should be more in the form of asset creation. Market participants may anticipate steeper fiscal deficit target for the final year 2015-16.
   
   
4. Clear guidance on Goods and Services Tax (GST): The much talked tax reform, GST, has missed its timelines quite often in the 2nd regime of UPA Government. It is believed that, implementation of GST alone would help substantially shore up India's GDP. Markets would expect the finance minister to provide more clarity on implementation of GST.
   
   
5. Simplification of tax laws: Tax structure for both, individuals as well as corporate assessees is expected to be simplified in a way that, there is no excessive speculation about the tax rates, which usually leads to lobbying among corporates. Moreover, scrapping of several taxes such as Dividend Distribution Tax (DDT) is also envisaged in the upcoming budget.
   
   

PersonalFN is of the view that, unless budget meets the investors' expectations, it is unlikely that, markets may continue to command expensive valuations in future as they do at present. After coming to power, the BJP Government has made several announcements which are considered positive but now it could be the high time for it to act tough. PersonalFN is of the view that, investors shouldn't speculate on the budget and should avoid betting on the direction of markets. PersonalFN believes investors would be better off if they chalk out a personalised asset allocation plan (after considering their financial goals) and stick to it irrespective of the market conditions.

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