Union Budget 2024 remains largely neutral for stock markets in India | Supplements- QHN

Finance Minister Nirmala Sitharaman with her team outside the finance ministry in Delhi on July 23 | Photo: PTI

There’s an absence of any direct boost to consumption, which was widely expected after the elections. If the new employment-linked incentive scheme works as anticipated, it will generate employment opportunities and will thereby lead to greater consumer spending. Tax simplifications should help companies in general.

Valuations for the Nifty therefore remain in line at around 21x price-to-earnings (P/E) for one-year expected forward EPS. Midcaps and smallcaps are at 60 per cent premium to largecaps. Income Tax cuts may indirectly benefit discretionary consumption and FMCG stocks. The continued (even if moderated) thrust on infrastructure growth and affordable housing, rural development should drive bullish sentiment for cement, paints, pipes, tiles, sanitaryware, cables and wires, and other associated building materials since demand is expected to improve directly or indirectly for those sectors. The PMGSY allocation reductions could however be a negative factor to some extent though other rural schemes may balance its impact.

The cut in customs duties for mobile handsets may negatively impact Dixon, and it could indirectly help telecom services companies if it drives demand for 5G handsets and hence, data demand. Other duty cuts on metals will help the jewellery sector, and electric vehicles (EVs). Renewables remain a focus area and given removal of angel tax, this could be a good year for renewables and internet-based businesses that the PE/VC (private equity/venture capital) community looks to support.  

In technical terms, the market is looking at continuity. The bull run should continue but there’s no macro-impetus. The Vix fell across the last two sessions, which is usually a bullish signal. Midcaps and smallcaps outperformed the Nifty which is no surprise.

Amidst sector movements, the Nifty Media index was the best performer – perhaps in the hopes that more discretionary income would translate into higher allocations to entertainment. The FMCG and consumer durables sectors also saw surges. FMCG has been an underperformer for the last year – although it has a positive return of around 18 per cent. This Budget could accelerate the uptrend. Consumer durables has been a strong performer with 40 per cent return in the last one year and this sector could also see an acceleration in trend if disposable incomes increase.  

Although there’s no specific measures that affect pharma or health care, both sectors are up more than the benchmark. The Information Technology sector is also apparently unaffected but the sector index is up 13 per cent in the last month and it did gain a little post-Budget.

The Nifty Oil & Gas Index looks a little shaky because the downstream oil marketing companies (OMCs) were hoping for compensation for the gas price cuts but that hasn’t happened. The Auto Index is also down slightly. Infra-dependent sectors like Industrial Metals, and more broadly the Nifty Infra index are down – the deceleration of infra allocation growth has apparently disappointed the market. The Realty Index is also down perhaps for the same reasons.

However, the worst share price / index performances came in the financial sector. The Bank Nifty was down, and the Nifty Private Banks was down even more. The Bank Nifty is heavily weighted in favour of large private banks. However, Public Sector banks also saw a selloff and so did the Financial Services and NBFC sectors. Banks and Financials have high sector weightage in the Nifty and this could be a drag on overall market trends if it continues.

Summing up, the market remains in a tight trading range in the short term and the long-term trend remains bullish. A breakout of 3-per cent plus or minus – say 750 points on the Nifty – would reset the medium-term trend but this Budget does not seem to have provided the triggers either way.

First Published: Jul 25 2024 | 6:25 AM IST