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Informist, Monday, Feb. 3, 2025

By Anshul Choudhary

MUMBAI – Benchmark indices are seen in a range Tuesday as the prospects of a global trade war may pose a risk after the US imposed tariffs against Canada, Mexico, and China. Investors are unlikely to take large bets amid uncertainty around global trade and ahead of the Reserve Bank of India's monetary policy decision on Friday.

There are concerns that tariffs by the US may push crude oil prices higher, and strengthen the dollar, leading to further depreciation in the rupee. Analysts are already seeing the possibility of the rupee hitting 90 per dollar this year. On Monday, the rupee ended at a record closing low of 87.1850 against the dollar.

The modest increase in capital expenditure in the Budget for 2025-26 (Apr-Mar), announced on Saturday, has disappointed some analysts. The Budget has allocated INR 11.21 trillion for capital expenditure in FY26, an increase of a mere 1% from the previous Budget estimate. This is significantly lower than the 5-10% increase that most analysts had expected.

This shift in strategy away from capital expenditure is done to control the government's spending and reduce the fiscal deficit, analysts said. However, this may impact returns in the near term, at least for companies that depend on government capital expenditure.

"The global macro backdrop of a strong dollar and high yields provides limited support. Staying on the path of fiscal consolidation is positive for macro stability, but growth is likely to remain weak in coming quarters," HSBC said in a report Monday.

However, some analysts see the Budget as an opportunity after the government provided the much-needed boost to the consumption sector by increasing the limit of income tax rebate to INR 1.2 million from INR 700,000 earlier and tweaks in tax slabs. "Consumption is likely to improve and investors need to realign their portfolios (away from capex-driven companies)," Sanjeev Hota, head of research at Sharekhan, said.

Considering this, analysts expect sector-rotation to continue as investors may move away from sectors such as capital goods, and industrials, and buy consumer-facing companies from sectors such as fast-moving consumer goods, durables, and automobiles. Within these sectors, durables are being seen as a better bet for now as FMCG companies are facing competition from local players, and high interest rates remain a concern for the automobile sector.

After the Budget didn't provide a major trigger for growth apart from income tax relief, all eyes are now on the Reserve Bank of India. 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 of the Monetary Policy Committee in 2025.

Till the RBI's decision on interest rates, markets are likely to stay in a range. The Nifty 50 is likely to face resistance of 23500-23550 points and find support at 23200-23100 points. For Tuesday's trade, a lot will depend on global markets as they assess the impact of a global trade war.  End

US$1 = INR 87.19

Edited by Saji George Titus

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