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Informist, Monday, Feb. 3, 2025

By Anshul Choudhary

MUMBAI – Concerns of further depreciation in the rupee and higher crude oil prices as the US imposed tariffs on imports from China, Canada, and Mexico affected sentiment in the equity markets Monday. Apart from this, disappointment over the lower-than-expected rise in capital expenditure in the Budget for the financial year 2025-26 (Apr-Mar) pushed investors to sell companies dependent on government orders.

Indices across global markets fell after the US announced the tariffs over the weekend and threatened to also slap tariffs on the UK. The Indian markets also fell with domestic benchmark indices down 0.4-0.5%, while small-cap and mid-cap indices fell 1-2%. The Nifty 50 closed at 23361.05 points and Sensex ended at 77186.74 points.

"Higher tariffs (by the US) raises worry that emerging markets' currencies may depreciate... if rupee goes to 89-90 level, FII (foreign institutional investor) outflows would continue," Sanjeev Hota, head of research at Sharekhan, said. "We don't know how long it (the tariffs) will remain... it can be 6 months or a year or more."

The tariffs announced by the US have raised concerns that it may disrupt crude oil supply from Canada and Mexico and push oil prices higher. At 1533 IST, Brent Crude futures were up over 1% to $76.54 a barrel. Energy stocks were some of the worst-hit, with Hindustan Petroleum Corp., Mahanagar Gas, Oil India, and Coal India down 3-6%.

Disappointment about the government's capital expenditure in the Budget for FY26 presented Saturday pushed investors to take a fresh look at the valuations of companies dependent on government orders. The Budget has allocated INR 11.21 trillion for capital expenditure in FY26, an increase of a mere 1% from the previous Budget. This is significantly lower than the 5-10% increase that most analysts had expected.

A major pain point was the muted growth in capital expenditure allocation for defence, roads, and railways, analysts said. While capital expenditure for the defence sector rose less than expected, the Budget for the railways was unchanged on year. Several companies in these sectors are trading at very high valuations on hopes of orders from the government. However, the government's focus appears to have shifted away from capital expenditure for FY26, which is a negative for the sector, analysts said.

Owing to this, shares of construction-major Larsen & Toubro were the worst hit on the Nifty 50 index and fell 4.6%. Shares of other capital expenditure-driven companies also fell, with Bharat Electronics, Power Grid Corp. of India, and NTPC down 2-3%. Among mid-caps and small-caps in these sectors, shares of Thermax fell nearly 8%, and those of Mazagon Dock Shipbuilders, Rail Vikas Nigam, and Bharat Dynamics fell 6% each.

The Budget was not all disappointment as the government acknowledged the slowdown in consumption and announced big measures to boost demand from the middle class. It raised the tax rebate limit to INR 1.2 mln for FY26 from INR 700,000. This is likely to put more money in the hands of people and boost consumption and benefit fast-moving consumer goods companies, consumer durables, and automobiles, among others.

Consumer-focused companies saw major gains Saturday, but the gains Monday were limited to select stocks. Shares of air-conditioner-maker Voltas rose nearly 6%, and those of car-maker Mahindra & Mahindra rose over 3%. Shares of FMCG companies saw some profit taking with Nifty FMCG down 1.7% after rising 3% Saturday.

All eyes are now on the Reserve Bank of India to boost growth. After the Budget presentation, several analysts iterated their view that the RBI may cut interest rates soon, with some expecting a cut as early as Friday, after the first meeting in 2025 of the Monetary Policy Committee. This led to gains in shares of some non-banking finance companies, with Bajaj Finance and Shriram Finance rising 3-5%.

While the imposition of tariffs by the US were seen as negative for the markets overall, the action also led to gains in stocks of exporters such as information technology companies, which may benefit from the depreciation of the rupee. Shares of Wipro rose nearly 3%. Those of Infosys and Tech Mahindra were up around 0.5% each.

* Of the Nifty 50 stocks, 16 rose and 34 fell

* Of the Sensex stocks, 10 rose and 20 fell

* On the NSE, 787 stocks rose, 2,063 fell, and 78 were unchanged

* On the BSE, 1,139 stocks rose, 2,877 fell, and 168 were unchanged

* Nifty Energy: down 3%; Nifty Oil & Gas: down 2.2%; Nifty IT: up 0.7%

BSE                                               NSE

Sensex: 77186.74 points, down 319.22 points       Nifty 50: 23361.05 points, down 121.10 points or 0.5%

End

Edited by Rajeev Pai

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