India's benchmark Sensex was among the world's best performers last year, advancing around 30 percent, on hopes of a turnaround in India's economic fortunes under Modi's leadership. The gains have extended into 2015, with the index up 4 percent year to date.
Budget check list
The market will be tracking three key areas in the budget: a credible fiscal consolidation path, a shift from subsidies to capital spending and specifics on the government's structural reform agenda, says Andrew Tilton, chief Asia economist at Goldman Sachs.
"The macro backdrop to the budget is very favorable. Unlike recent years, both inflation and the current account deficit are no longer major concerns. Further, the sharp fall in global commodity prices, especially oil, are providing a big helping hand to the government's finances," Tilton said.
Economists expect the government to set a fiscal deficit target of 3.6 percent of gross domestic product (GDP) for fiscal year 2015/2016, down from 4.1 percent in the current fiscal year ending March 31.
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The lower target will likely be based on a reduction in subsidies as a result of lower commodity prices, said Tilton.
The Reserve Bank of India has stressed fiscal consolidation as a necessary prerequisite for further easing.
The accompanying statement to the RBI's surprise rate cut last month left the door open for further monetary loosening, but this was contingent on "sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure."
From subsidies to capital spending
Investors will be looking for the government to shift capital spending towards public projects, using the savings from a reduction in subsidies.
"At first glance, this seems at odds with the RBI's hopes of fiscal consolidation. But given that the RBI is hoping for 'high quality' consolidation, a shift from current expenditure to greater public investment mean these factors aren't mutually exclusive," Shilan Shah, economist at Capital Economics.