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Informist, Wednesday, Jul 24, 2024

By Alina Geogy

MUMBAI – The domestic market is expected to remain volatile on Thursday because of the monthly expiry of July derivatives series and the reshuffling of investment portfolios after revision in taxes in the Union Budget, analysts said. They also said that investors are assessing the Budget, which was largely good, though there were some misses and negative surprises. Investors will also keep an eye out for Apr-Jun earnings of major companies and global market triggers. Tech Mahindra and Nestle India are among major companies set to announce earnings on Thursday.

Market participants are reshuffling and adjusting their portfolios after the government made some changes to taxes and increased securities transaction tax on the derivatives side, Rajesh Palviya, head of technical & derivatives research at Axis Securities, said. The announcements pertaining to taxation in the Budget may continue to weigh on the sentiment of market participants, but the rest of it made it a growth-oriented Budget, Palviya said.

Fund managers will align their portfolios with the new tax regime so that focus remains on "alpha generation" with respect to benchmarks, he said. The long-term capital gains tax was raised to 12.5% from 10% earlier, while short-term capital gains tax was increased to 20% from 15% earlier. The securities transaction tax on futures and options was raised to 0.02% and 0.1%, respectively.

Today, the Indian market extended losses for the fourth straight session. The Nifty 50 ended 0.3% lower at 24413.50 points and the Sensex ended 0.4% lower at 80148.88 points. Indices came off lows after languishing most of the day. 

The Nifty 50 could bounce back to 24500-24600 points if it remains above 24300 points, Shrikant Chouhan, head of equity research at Kotak securities, said in a note. On the other hand, the 50-stock index could retest the level of 24150-24100 points if it falls below this level, he said. It is very difficult to give a near-term view, especially since the post-budget trading sessions are aligned with the monthly expiry, Palviya of Axis Securities said.

The market was overbought owing to a decent bull run in the weeks prior to the budget, and investors were looking for a reason to book some profits, which were provided by the post-budget concerns, Ajit Mishra, senior vice-president of technical research at Religare Broking, said.

However, some analysts were of the view that the impact of the Budget on the equity market has ended. "From equity markets' standpoint, we don't think the Budget would materially alter the direction," Nuvama Institutional Equities said in a report. "While the hike in capital gains tax could dampen sentiment in the near term, earnings are likely to be the key driver – where we think momentum is fading," the brokerage firm said.

Some investors, who entered the market in the pre-budget euphoria and high expectations, are now looking for an exit, Mishra of Religare Broking, said. Foreign portfolio investors are also reducing their exposure to the market to deal with the tax components, Mishra said.

Investors will analyse the June quarter earnings of SBI Life Insurance Co, which was posted slightly before market closing, and Axis Bank which was released after market hours today. SBI Life Insurance Co's net profit for Apr-Jun rose 36% on year to 5.2 bln rupees, aided by a rise in the gross written premium. Axis Bank's net profit for Apr-Jun was slightly below analysts' estimates. Fast-moving consumer goods major Nestle India is expected to maintain high single-digit growth in Apr-Jun aided by price hikes, while information technology firm Tech Mahindra will likely report sequential earnings growth for the quarter on account of growth in its manufacturing and hi-tech verticals.

Infrastructure and energy stocks are seen positive after the budget announcements, Akhilesh Desai, research analyst at domestic brokerage firm Ajcon Global Services, said. Energy companies, such as NTPC and Power Grid Corp of India, may gain more after the various plans related to thermal power plant and nuclear energy projects lifted the outlook for the sector, he said.

Further, the allocation to boost rural development through agriculture, employment generation, and rural infrastructure projects is seen as a major positive factor. This can benefit agricultural and allied sectors. 

The budgetary allocation for the defence and railways sectors was unchanged in comparison to the Interim Budget, in contrast with investors' expectations of an increase. Stocks related to these sectors took a breather after lack of major announcements in the Budget targeting them. Yet, analysts remain positive on these stocks for the medium-term and now count on the corporate earnings of these companies to justify and help sustain the recent gains in their stocks.

Information technology, pharmaceuticals, fast-moving consumer goods stocks are seen as safe bets due to concerns of profit-booking in the overall market, analysts said. However, the banking space is expected to remain under pressure in the upcoming sessions. Oil and gas stocks are a mixed bag right now, with some declining post weak earnings, while some showing positive momentum, an analyst said. 

Global cues will also weigh on investor sentiment. Of late, the US market has been witnessing some broad-based profit-taking by investors. Any signs of recovery or advancements on Wall Street or positive geopolitical developments can help soothe sentiment, analysts said. Updates on the US presidential election will also be tracked by global investors.  End

Edited by Ashish Shirke

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