How investors can craft investment strategy with Budget 2025

On February 1, 2025, Honourable Finance Minister Nirmala Sitharaman announced her eighth consecutive Union Budget for the financial year 2025-26.

Leading up to the Budget, the stock markets were optimistic. On January 31, 2025, the Sensex closed 741 points higher, and the Nifty 50 rallied to close above 23,500, spurred by strong investor sentiment. However, following the budget announcement, the markets experienced a downturn. The BSE Capital Goods Index dropped more than 3% as the government announced a capital expenditure budget of ₹11.2 trillion for FY26, almost the same as in FY25.

But what does this mean for your portfolio? And how do you incorporate the provisions of the Union Budget into your investment strategy for 2025? Let’s explore the latest Budget announcements, their impact on various sectors, and actionable investment strategies to maximise returns.

Understanding the impact of Budget 2025 on investment strategies
 

To craft an effective investment strategy post-Budget 2025, you should first evaluate how these measures will shape market trends. Historically, Budgets have significantly influenced market movements. For instance, the Union Budget 2021’s focus on healthcare and infrastructure led to a surge in pharma stocks and infra-focused mutual funds.

In the same vein, let’s explore how different announcements in Budget 2025 can influence investment strategies in India.

1. Increased tax exemption limit

One of the most significant announcements in the Budget 2025 was a hike in the income tax exemption limit to ₹12 lakh. This change provides immediate relief to millions of taxpayers by increasing disposable income. The budget also includes a standard deduction of ₹75,000, which raises the tax-free income to ₹12.75 lakh for salaried individuals. In another tax reform, the Tax Deducted at Source (TDS) threshold for senior citizens has been doubled, from ₹50,000 to ₹1 lakh.

With more money in hand, investors may want to make the most of their increased savings investment strategy. If you haven’t already, now could be an ideal time to start Systematic Investment Plans (SIPs) and Exchange-Traded Funds (ETFs). These funds tend to perform well in a growing economy and will benefit from the increased consumption and economic activity anticipated from tax savings.

As a trader, you can allocate more funds to equity markets in sectors benefiting from the Budget. This includes fast-moving consumer goods (FMCG), automobiles, and aviation, which are seeing a surge in demand. This investment strategy can lead to potential stock price gains and help build a diversified and robust portfolio.

2. Micro, Small, and Medium Enterprises (MSMEs) support

Another significant announcement in the 2025 Budget is the increased focus on MSMEs, with a new Fund of Funds (FoF) allocation of ₹10,000 crore. Additionally, tax reliefs, credit access improvements, and increased limits for MSME classification will likely boost the growth prospects of small businesses across India.

You may consider increasing your exposure to MSME stocks for your investment strategy, which may benefit from these policy changes. Investing in ETFs that track MSME indices or looking for stocks in this sector that may experience significant growth is a smart way to capitalise on this initiative.

3. Focus on artificial intelligence (AI)

In a bid to position India as a global leader in AI, the budget announced the establishment of three new AI centres with an outlay of ₹500 crore. This will encourage innovation in emerging technologies and create a conducive environment for technology-driven startups.

Investors can capitalise on the growth of AI, data analytics, and automation by investing in related technology stocks. You can benefit from the increasing demand for tech solutions in the healthcare and e-commerce sectors. You can also include tech-focused mutual funds or ETFs in your investment strategy in the wake of these developments.

4. Agricultural reforms and rural growth

The Union Budget 2025 has introduced several initiatives to improve the agricultural sector, including the Dhan Dhanya Krishi Yojana and a National Mission for Edible Oils & Seeds (NMEO). These reforms will target low-productivity districts and strengthen domestic production of pulses, edible oils, and seeds.

These reforms are poised to boost agriculture-related sectors, including fertilisers, food processing, and agri-tech. Consider diversifying your investment strategy by adding shares from companies involved in agricultural technology, rural development, and agribusiness, which could see a rise in demand due to these initiatives.

5. Increased spending on infrastructure

The government proposed ₹1.5 lakh crore for interest-free state loans for capital expenditure (capex) and infrastructure development. Building long-term infrastructure, including roads, railways, and smart cities, will spur demand in the construction and real estate sectors.

You can capitalise on this by investing in the stocks of construction companies, infrastructure funds, and real estate developers. Additionally, infrastructure-focused mutual funds may provide diversified exposure to the growing capex plans.

6. Focus on green energy

Another crucial aspect of Budget 2025 is the government's push towards green energy, including tax reductions on critical raw materials like lithium-ion batteries and cobalt powder. This signals strong support for electric vehicles (EVs) and renewable energy technologies.

To take advantage of this, pivot your investment strategy to green energy-focused funds, EV companies, or renewable energy ETFs. The shift towards sustainability presents a long-term growth opportunity for investors in these sectors. Additionally, Environmental, Social, and Governance (ESG) funds could offer a good balance of financial returns and ethical investing.

7. Healthcare sector growth

In line with the government’s focus on healthcare and customs reductions, essential medicines for chronic diseases are expected to become more affordable. Adding new medical education seats also indicates a long-term commitment to improving healthcare infrastructure.

Including the healthcare sector in your investment strategy presents ample growth opportunities. Consider adding stocks of pharma companies or healthcare-focused mutual funds. With the increased governmental focus, this sector might see sustained growth over the coming years, making it a strong pillar of any diversified portfolio.

A step-by-step guide to align your portfolio with the Union Budget 2025
 

Here’s how you can adapt your investment techniques to align your portfolio with the Budget 2025 –

1. Assess your current portfolio

The first step in adjusting your portfolio to align with the Union Budget 2025 is assessing your existing asset allocation. If your portfolio is heavily weighted toward fixed-income assets, consider increasing exposure to equity markets.

2. Diversify with sector-specific investments

Use varied investment methods to minimise risk and capture opportunities across different market segments. Consider including both equity and fixed-income securities and explore mutual funds or ETFs that focus on emerging sectors highlighted in the Union Budget. For 2025, sectors like technology, infrastructure, MSME, and agriculture should be at the forefront of your investment strategy.

3. Consider alternative investments

Diversifying into alternative options like fixed deposits, gold ETFs, or Sovereign Gold Bonds (SGBs) offers a hedge against inflation. If you have a higher risk tolerance, AI startups or green energy via venture capital can be lucrative.

4. Focus on long-term goals

The budget’s tax reliefs and sectoral growth may create short-term opportunities. However, you should focus on aligning your investment strategy with long-term goals. With the government emphasising infrastructure, agriculture, and technology, these sectors present solid long-term growth prospects.

5. Regularly monitor and rebalance

Economic policies can evolve, so it is essential to regularly monitor the impact of the Union Budget on your investments. Rebalancing your portfolio in response to market movements will ensure you stay on track to achieve your financial goals.

Reposition your investments today
 

Incorporating the budget announcements into your investment strategies can help you take advantage of the opportunities presented in Budget 2025. You must carefully analyse the sectors that benefit from the government's policies to align your portfolio for long-term financial success.

Looking for support in navigating your investment journey? IDFC FIRST Bank offers a wide range of financial solutions to ease the process for you. From high-interest fixed deposits and mutual funds to demat accounts, comprehensive wealth management solutions, and more, discover tailored solutions to suit your financial goals today!