The outlook for brokers in India in 2025: The budget and beyond

Key Takeaways

• Union Budget 2025 aimed to boost both domestic and foreign investment in the capital markets.
• India faces an uncertain global outlook, but prospects for foreign investment remain good.
• Indian brokers face a complex landscape, and technological solutions are central to their response.

Volatility has dominated the outlook in global capital markets in the first quarter of 2025, and India has been no exception to this trend. In this uncertain context, Finance Minister (FM) Nirmala Sitharaman’s Union Budget for 2025 (delivered in February) has been closely scrutinized. The budget included a range of initiatives designed to support investment, including significant tax relief for the middle class. However, the immediate impact on the markets was muted, in contrast to the past few years, when Indian benchmark indices have responded positively on Budget Day. While government policy is just one of many factors impacting the Indian market, brokers nonetheless have much to consider from the budget.

 Which stocks or sectors are likely to benefit most?

In her budget speech, Sitharaman announced raising the income tax exemption limit to ₹12 lakh. The government also tweaked tax slab rates for individuals earning above this threshold, which would mean putting around ₹1 lakh crore in the hands of the middle class.

Historical trends show that most disposable income is directed toward consumption. Hence, consumption-focused stocks – such as FMCG, automobiles, and domestic tourism – are likely to see steady growth in the coming days. However, there is also the potential for these tax cuts to create more retail investors. Any such growth is expected to focus specifically on equities funds through Systematic Investment Plans (SIPs). But long term, market performance is likely to continue to be driven by fundamental factors, including the global economic outlook.

Prospects for foreign investment

The FM made two key announcements in Union Budget 2025 that could directly impact foreign portfolio investors (FPIs) – an increase in tax rates for debt instruments and budgetary provisions focused on strengthening the International Financial Services Centre (IFSC) in GIFT City, Gujarat.

Foreign investors will no longer be eligible for low tax rates on non-equity instruments, such as listed bonds, debentures, and debt mutual funds. From 01 April 2025, these investments will be taxed at 12.5 percent, up from the previous rate of 10 percent. Due to this change, foreign investors are likely to liquidate some of the investments before the new rule comes into force, as rates of return are likely to be impacted significantly. However, overall investment in India is unlikely to be affected, as investors are expected to shift funds to other asset classes.

The FM announced a slew of measures to strengthen IFSC and enhance its global competitiveness, including extending tax exemptions on income from select financial products. Currently, non-residents don’t have to pay tax on income from offshore derivative instruments and similar products if they trade through an IFSC bank. This benefit will now be extended to all IFSC units, including Alternative Investment Funds with an FPI license. Also, capital gains exemptions have been introduced for fund relocation, ensuring that transfers of shares or units in retail schemes and ETFs under IFSCA Regulations 2022 are not considered taxable transfers.

The budget also proposed simplified rules for fund managers based on IFSC, including easing the limits on the amount Indian resident investors can invest in these funds.

Overall, these measures are clearly aimed at encouraging both foreign and domestic investment through IFSC. In addition, these tax and regulatory changes may also encourage diversification and demand for a broader range of asset classes among FPIs.

In the long term, the Indian equity markets are likely to remain a key target for foreign investment, primarily due to their growth potential. Also, their current low leverage profile, low trade exposure to the US, and lower levels of foreign equity ownership mean that they are also increasingly attractive for investors seeking to diversify in the face of global volatility.

The impact on brokers

The Union Budget 2025 is engaging with a complex global and domestic landscape, and many of the same issues impact Indian brokers.

Will tax cuts drive growth in retail investment and consumption-focused stocks? If so, rising volumes and the potential for increased volatility will put the focus on internal systems and processes. Brokers must have stable, scalable solutions in place to handle this dynamic market environment. Volatile global markets may well prompt investors to diversify, and tax and regulatory changes may support this process. Sell-side firms must ensure they can fulfill this demand with platforms that can support multi-asset trading, and workflows that allow brokers to deliver a comprehensive service efficiently.

Meanwhile, the continuing growth of foreign investment drives an expectation of a consistent global service, and brokers are seeking solutions that can support them in providing this. Technology will be at the heart of how brokers respond to the current range of global and domestic challenges.