By Suvashree Choudhury and Arnab Paul
MUMBAI/BENGALURU (Reuters) - India's financial markets were steady on Friday morning as traders remained on the sidelines, awaiting details on the extent to which the government will spend on populist measures in a pre-election budget due later in the day.
The 10-year benchmark government bond yield was at 7.49 percent, barely changed from Thursday's close of 7.48 percent, while the rupee was almost steady at 71.14 to the dollar compared with its previous close of 71.09.
Indian shares extended gains to climb marginally higher, with financials and IT stocks rising.
The broader Nifty was up 0.19 percent at 10,852.05 as of 0352 GMT, while the benchmark Sensex was 0.21 percent higher at 36,332.51.
Housing Development Finance Corp Ltd and Infosys Ltd were up 1.55 percent and 1.37 percent, respectively.
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Shares of Vedanta Ltd slumped to 15.6 percent after it reported a 21 percent fall in quarterly profit on Thursday.
The budget will also be a cue for the Reserve Bank of India's monetary policy, expected to be announced on Feb. 7. Any sharp rise in populist expenditure could diminish chances of a dovish policy stance and future rate cut expectations, traders said.
"There are two crucial events lined up for investors - the budget and monetary policy," said a senior treasury official at a foreign bank.
"While most of the negatives have been priced in as traders are sitting light on bonds, investors are quite worried about the extent to which the government might spend as political risks build up."
Prime Minister Narendra Modi's government is expected to try and shore up its political support with big ticket farm giveaways and tax cuts for the middle class in its final federal budget on Friday, months before elections.
Stung by opposition parties' victories in three state polls in December and an impending national elections by May, Modi has already exempted many small businesses from paying taxes under a unified goods and services tax (GST). He is likely to do more to win back more voters including farmers and youth.
More than 900 million people will be eligible to cast votes in the world's biggest ever democratic exercise and the pressure to woo them is intense.
Investors will closely watch these details to gauge the impact on fiscal deficit, market borrowing and overall growth for 2019/20 fiscal year.
(Reporting by Suvashree Dey Choudhury in MUMBAI and Arnab Paul in BENGALURU; Editing by Gopakumar Warrier)
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