Updated at 0908 GMT

By Johann M Cherian

July 23 (Reuters) -Indian equities hovered near the flat mark on Tuesday, following a budget presented by the newly elected local government, while investors in developing markets also stayed cautious ahead of interest rate decisions by central banks in Hungary and Turkey.

Indian stocks .BSESN initially dropped as much as 1.5% and the rupee INR=IN hovered near sessions lows of 83.71 per the dollar as traders reacted to tax hikes on equities and derivatives trading.

Since March 2020, the index has soared more than 200% due to increased trading in the derivatives market.

India's government lowered its fiscal deficit target to 4.9% of economic output for the financial year ending March 2025, from 5.1%, which analysts called prudent.

"(The finance ministry) has managed to meet the demands of coalition parties, ramp up spending on employment programmes more generally and reduce the income tax burden for low-earners, all while keeping the fiscal deficit in check," said Shilan Shah, deputy chief emerging markets economist at Capital Economics.

"That has been made possible by a bumper dividend transfer from the (central bank), an upward revision to (indirect tax) revenue projections and a rise in the long-term capital gains tax."

Elsewhere, Turkish equities .XU100 lost 0.7% and the lira TRYTOM=D3 hovered near record lows, ahead of a central bank decision, with economists broadly expecting no change to the current 50%, until later in the year.

In central and eastern Europe, the Czech koruna EURCZK= led declines with a 0.5% loss relative to the euro after Vice-Governor Jan Frait was quoted saying a 50 bps reduction cannot be ruled out when the central bank meets next week. The yield on sovereign bonds CZ2YT=RR, CZ5YT=RR, CZ10YT=RR across the curve also dipped between 2 and 4 bps.

Hungary's forint EURHUF= slipped 0.2%, on expectations for the domestic central bank to lower borrowing costs by 25 basis points (bps) to 6.75% at 1200 GMT.

In Africa, Kenya's shilling EURKES= weakened 0.6% and yield on the 5-year sovereign bond KE5YT=RR climbed 20 bps.

The country submitted an economic repair plan to the International Monetary Fund and it expects the board to review it for approval at the end of August, after recent protests against tax hikes forced President William Ruto's government to rapidly draw up new spending cuts.

Talks over a global tax deal are continuing well past a June 30 deadline and governments are now looking to a Group of 20 finance leaders meeting for progress on a stalled plan to reallocate taxing rights on large multinational companies.

Investors also monitored protests in Uganda. The shilling EURUGX= was flat and yields on short-term sovereign bonds UG3MT=RR, UG6MT=RR slipped.

Reporting by Johann M Cherian in Bengaluru; Editing by Jacqueline Wong

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