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Informist, Tuesday, Jul 23, 2024

By Alina Geogy

MUMBAI – Domestic benchmark equity indices are expected to move sideways and may look for new triggers in the coming sessions after being volatile today following the Union Budget. Analysts also did not ignore the possibility of a further correction, though a sharp one is unlikely. The market will witness profit-booking at higher levels on Wednesday, Jigar Patel, senior manager of equity research at Anand Rathi Shares & Stock Brokers, said. Meanwhile, the focus will turn to the June quarter earnings, which is likely to set the market's tone for the short term.

The Nifty 50 is expected to face resistance at 24600-24700 points and support would be 24300 points for the near term, according to technical and derivatives analysts. Today, the Nifty 50 and the Sensex ended 0.1% lower each at 24479.05 points and 80429.04 points, respectively. The Budget took an unexpected turn after the government surprisingly hiked capital gains taxes, while the market had actually expected a reduction. This led the benchmark indices to fall over 1%, but gains in stocks of fast-moving consumer goods aided the sentiment. 

Long-term capital gains tax was raised to 12.5% from 10% earlier and short-term capital gains tax was increased to 20% from 15% earlier. After this hike in capital gains tax, there will be a reduction in post-tax returns, Onkar Kelji, a research analyst at IndSec Securities, said. The securities' transaction tax on futures and options was also raised to 0.02% and 0.1%, respectively.

Several sectors had gained on anticipation of a budgetary impetus, but some investors felt that announcements made in the Budget were lacking on certain aspects. It is too early to say if measures and policies announced are sufficient for economic growth, the senior vice president of research at a domestic brokerage firm said. Implementation is the key aspect to be watched out for now, he said. If executed well, it could be beneficial for the economy, he said.

Prices of gold could see some respite now after a cut on customs duty levied on gold, the senior vice president quoted above said. The finance minister announced that the customs duty levied on gold and silver would be cut to 6%, and that on platinum to 6.4%. Currently, the customs duty on gold bars less than 1 kg per passenger is 10%. The announcement boosted jewellery stocks such as Kalyan Jewellers India and Titan Co today.

Investor sentiment towards defence and railway-linked stocks are expected to take a slight hit yet again on Wednesday after these sectors found no significant mention in the Union Budget. There were expectations of higher budgetary allocation for these sectors, which could boost indigenisation and technology modernisation, analysts said. Valuations of these sectors had shored up on expectations of fund infusions from the government, Kelji of IndSec Securities, said.

These are order-book driven sectors, and now order inflows could be sluggish, he said. These stocks had surged ahead of the Budget on the anticipation of more government orders. Investors will have to shift their focus to management commentary and potential order inflows of these companies, Kelji said. 

The government allocated 1.52 trln rupees to agriculture and allied activities and approved 2.66 trln rupees for rural development and infrastructure, among other measures to boost rural consumption and demand. In the fast-moving consumer goods sector, there is no change in taxation for cigarettes, which is a positive for ITC, the senior vice president at a local broking firm said. The push for rural development, especially of incomes and connectivity, is also likely to help automobile sales in rural markets.

"The expectation of a normal or an above-normal monsoon, coupled with the favourable measures announced by the government today, will help boost agricultural income and bolster rural demand which will augur well for the FMCG industry as a whole this year", the managing director of a food manufacturing company said in a note.

For the real estate sector, the budget is being seen as overall positive owing to multiple announcements including an increase in allocation for the urban housing scheme and reduction in stamp duties, Tanvi Tambat, research associate at Elara Capital, said. The finance minister had said the government would allot 2.2 trln rupees under the Pradhan Mantri Awas Yojana (Urban) scheme for five years.

Other budget announcements, such as transit-oriented development plans for 14 cities and land-related reforms for land administration and urban planning are also going to boost the real estate industry, Tambat said. The 150-bln-rupee special financial assistance for Andhra Pradesh to facilitate the state's development plan for a new capital will aid infrastructural and realty growth, she said.

Now, the focus will shift back to corporate earnings, with several key players slated to announce their June quarter earnings on Wednesday. Shares of Axis Bank will be eyed Wednesday ahead of the bank's Apr-Jun earnings. While the private lender's net profit is expected to rise on year in the June quarter, it is seen falling on a sequential basis, owing to a rise in slippages, which in turn could affect the asset quality of the bank. 

Hindustan Unilever and Bajaj Finance released their financials after market hours today. HUL reported on-year growth in net profit owing to modest growth in volumes and declining prices of raw materials and Bajaj Finance's consolidated net profit improved from the year-ago period, though it was slightly lower than estimates.  End

Edited by Vidhi Verma

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