The much-anticipated Budget next month will be the first major policy document of the Narendra Modi government and expectations are that it will act as the much-needed trigger for the markets, which have failed to pick momentum post the election results.

The S&P BSE Sensex, which rallied nearly 3,000 points ahead of election results, came under some bit of profit booking post the results. The index managed to gain nearly 1000 points since May 16 till date.

"The budget is very important for two-three reasons for the markets. One is that this new government has got a clear mandate. So they can take decisive actions," said Nirmal Jain, Chairman, IIFL Group.

"People would like to see performance and the government can roll out reforms covering tax, FDI and generally measures that facilitate the ease of doing business in India," he added.

Jain is of the view that there are huge expectations from the budget and both the PM and the FM will have to deliver. There is no scope for any excuse since this is not a coalition government. The NDA has won with a clear majority and so the government should deliver, he added.

Analysts are of the view that it (budget) will be the first litmus test for the newly-elected government and Arun Jaitley as a Finance Minister. Expectations are that his budget will definitely have a strong section covering ideas taken from Modi's agriculture economics, practiced in Gujarat.

The final Budget for FY2015, which will likely be delivered by early July by new finance Minister Arun Jaitley, can be seen as the new administration's first real litmus test, BNP Paribas said in a report.

"Sovereign ratings agencies, while encouraged, like investors, by the scale of the BJP's victory, will be looking for, and expecting, credible remediable action that keeps India on track for a 3 per cent of GDP central government deficit by FY2017," added the report.

An important parameter would be the issue of fiscal deficit which has come out to be 4.5 per cent, 30bps below the targeted 4.8 per cent for FY14.

The VoA or the Vote on Account has set a tough target of 4.1 per cent for FY15. It is expected that the subsidy bill will overshoot budget, while shortfall from tax collections due to slowdown in the economy would keep the fiscal deficit higher than the budgeted 4.1 per cent of GDP, say analysts.

A solid budget can support expensive valuations:

The Indian markets are trading at valuations which are slightly expensive compared to their historic averages. But a credible budget by the new government next month can give much-needed direction to the markets.

Analysts do not see a runaway type of rally post the Budget, but stock-specific action is more likely prediction in economy-related sectors such as realty, infrastructure, oil & gas etc.

"If India is today trading at a slightly expensive valuation which is above its average, but if reforms indeed have the potential to transform India, then definitely we can support 16.5 to 18-18.5 and bear in mind we are still way below the peak valuation levels of 24 to 26 that we had seen in 2007," said Arindam Ghosh, CEO, BlackRidge Capital Advisors.

"The budget probably is going to be the most important vision and mission statement which is going to come out from the new government. What get spelt out in terms of policy reforms can really re-rate India and support the valuation that we are talking of," he added.

Dilip Bhat, Joint MD, Prabhudas Lilladher, is of the view that the big trigger will be the budget. At least till then, the markets will hold the level and the scenario will still be buy on dips at the moment, he added.

The Union Budget in early July and any potential diesel, gas and urea price hikes will provide some direction. Growth recovery should follow inflation control, though headline GDP recovery may take a while given fiscal consolidation and inflation control imperatives, said a UBS report.

Announcements on FDI liberalisation (with implications for manufacturing, CAD, and potentially exports), tax reforms (important one being GST), insurance and pension bills should also begin shortly, added the report.