JOIN USBudget, US Fed meet to drive markets
We expect the market to continue with its wild swings this week until two key events - Union budget and US Fed meeting - get over as they would provide clear directions on either side. Any positive statement from the US Fed in its upcoming monetary meeting and constructive announcement by the government in the Union Budget on February 1 can take the market higher.
Otherwise the weakness would persist in the market in the near term. Till then stock specific action is likely to continue, with the earning season in full progress.
Bajaj Finance, Vedanta, BEL and NTPC are some of the heavyweights whose third quarter results for FY23 were declared towards the end of last week and reaction would be seen on Monday. Largecaps like Bajaj Finserv, Tech Mahindra, L&T, BPCL, Sun Pharma, Coal Inida, GCPL, IOC, Dabur and Titan, among many others, would be declaring results this week post which majority of results for Nifty companies would be over.
Union Budget 2023-24 is the last full budget before general elections next year and thus expectations are running high that the government might announce a populist budget with big spending. But on the contrary, we don’t expect any major policies and announcements in this Budget, though it is very likely that the government can target capital spending of Rs 8.8 lakh crore in FY24E (up another 17 per cent YoY, ~20 per cent of total spending), and raise it to ~3 per cent of GDP. Thus three themes are likely to play out this budget – infrastructure, energy and manufacturing.
The focus would be largely growth-oriented with emphasis on further development of infrastructure like roads, railways, water and metro. Furthermore, a lot of emphasis would also be laid on renewable energy in order to reduce the energy cost to GDP with more incentives being announced to push solar power, electric vehicles, public transport, etc.
Apart from this, manufacturing would be another theme which would be the focal point this budget. Government has been pushing for indigenisation through various schemes and thus further importance could be laid on it through import substitution, push towards exports, etc.
Domestic equities witnessed heavy selling pressure last week and fell to a 3-month low amid heightened volatility. The selling was largely led by banking, metals and oil & gas along with Adani group stocks.
Nifty fell 423 points (-2.3 per cent) during the week to close below its crucial support level at 17,604 levels. Auto sector was the biggest gainer rising over 3 per cent after auto heavyweights like Tata Motors, Maruti, TVS Motors and Bajaj Auto reported strong results. FMCG and IT too saw some buying interest and were up ~1 per cent. PSU banks which were the biggest gainers of 2022 lost 10 per cent this week.
Domestic markets saw mayhem during the past week led by a series of negative triggers. The allegations by Hindenburg Research on the Adani Group have created widespread panic in the Indian markets, which created a spill over effect on the banking space. This apart, heavy FII selling, caution ahead of prominent central bank meetings like the Federal Reserve, European Central Bank and Bank of England this week and India’s last full Union Budget before 2024 election, led to nervousness in the market.
Nifty finally gave up its key support levels and drifted below 17,800 mark. Volatility index, India VIX too rose sharply by 18 per cent to 17.3 levels, indicating panic among investors.
(The author heads retail research at Motilal Oswal Financial Services Limited)