Markets await clarity from govt in Budget proposals

Indian equity markets fell sharply on the last day of the extended week to close at 4-month low after the Union Budget presented on 1st Feb (Saturday) disappointed market participants. Sentiments were also dampened by rising concerns over fast-spreading coronavirus globally. Volatility was high during the week due to monthly F&O expiry, mixed quarterly results so far and the big event – Budget 2020.

Nifty50 corrected by 4.8% for the week, its biggest weekly fall in the last 8 years. Even, broader markets witnessed selling pressure with both Nifty Midcap100 and Nifty Smallcap100 being down 4.5% each.

All the sectors ended in red led by Metals which was the biggest loser – down 11.3%, followed by Energy (-8%), Realty (-7%), Media (-7%).

Foreign Institutional Investors (FIIs) were net sellers every day of the week, selling equities worth more than Rs 9150 crore, while Domestic Institutional Investors (DIIs) were net buyers to the tune of Rs 6,400 crore.

Market was disappointed with the Union Budget as it failed to provide a clear roadmap for economic growth and did not make any changes in the Long Term Capital Gain Tax. Further, the economic survey presented on Friday estimated FY20 GDP growth at 5%, slowest since the global financial crisis of 2008-09.

It further projects economic growth at 6.0-6.5% in FY21.

The Budget was more an aspirational and pro middle class where lot of stress was laid on doubling farmers’ income, providing better standard of living, pushing economic development and creating a caring society.

Some other measures like IDBI Bank stake sale, LIC IPO, increase FPI investment limit in corporate bonds from 9% to 15%, rising allocation of highway and road construction were also positive for the long term. However, the budget fell short of expectations of giving the intended stimulus which could put the economy back on the growth path.

On Monday, all market participants would be present as many were not there on Saturday and would react to the budget. Also, the Chinese markets would open on Monday after an extended New Year holiday and might see a sharp sell-off due to the virus outbreak. Investors back home would also react to the Auto monthly sales numbers. In addition, RBI’s Monetary Policy meeting would be held from February 4-6 and consensus is that after the recent hike in inflation, RBI may keep repo rates unchanged.

Third-quarter earnings have been in line with expectations so far. In terms of PBT, Consumer has exceeded, Automobiles, Capital Goods and Metals have missed, while Private Banks, NBFC and Healthcare have met our expectations. Tax cuts continued supporting earnings growth. Management commentary is incrementally positive on rural consumption (both Auto and Consumer managements alluded to rural consumption recovery) but cautious on loan growth/asset quality trends in retail banks. Next week heavyweights like Bharti, Titan, Hero Moto, Sun Pharma, Divis, Eicher Motors, Lupin among others would be announcing their results.

Technically, Nifty failed to hold psychological 12,000 zones and corrected sharply on Budget day towards 11,600 zones. It has been making lower top - lower bottom and formed a big Bearish candle by settling around its 200 DEMA.

As of now, there is no sign of reversal on charts and thus the ongoing correction may continue towards 11,500 and then 11,300 levels.

(The writer is the head of Research at Motilal Oswal Financial Services)