Post-Budget Stock Market Report 23 July 2024

Overview

The recent budget announcement has brought significant changes to the Indian financial landscape, impacting various sectors and the overall market sentiment. Key highlights include a reduction in Basic Custom Duty and AIDC on gold, fiscal consolidation efforts, and strategic allocations for agriculture, infrastructure, and youth development.

Gold and Commodities

• Gold Price Reaction: The reduction in Basic Custom Duty and AIDC on gold from 15% to 6% led to a substantial decrease in gold prices on the Multi Commodity Exchange (MCX), with prices falling by more than Rs 3800 to Rs 68,900.
• Comex Gold: Comex gold remains below $2415, contributing to the bearish outlook. The price range for gold is now projected between Rs 67,500 to Rs 69,500.
• Customs Duty on Silver: Reductions in customs duties on silver are expected to similarly benefit domestic companies by potentially lowering prices.

Economic and Fiscal Measures

• Fiscal Deficit: The budget aims for a fiscal deficit target of 4.9% for FY 2024-25, emphasizing fiscal consolidation.
• Employment and Skills Development: Significant measures have been introduced to boost youth employment and skills development.
• Agriculture and Allied Sectors: An allocation of Rs 1.52 lakh crore has been made for agricultural and allied sectors.
• Infrastructure: A substantial focus on infrastructure continues with 3.4% of GDP, amounting to Rs 11.11 lakh crore, earmarked for this sector.

Market Reaction and Trends

• Nifty and Sensex: The Nifty opened positively but breached crucial supports, ultimately closing in the red, down 30 points at 24,479. The Sensex also ended marginally lower by 73.04 points at 80,429.04.
• Market Volatility: High volatility was observed with India VIX decreasing by 17.43% to settle at 12.7475.
• Budget Day Impact: On Budget day, Nifty fell almost 500 points from its day high but recovered 470 points from its day low, indicating strong bullish momentum. Immediate resistance is at 24,800, while 24,200 and 24,000 are critical support levels.

Sector Performance

• Top Performers: FMCG, healthcare, media, and IT sectors showed resilience, with FMCG advancing over 2.60%.
• Underperformers: Realty, metals, and banking sectors faced pressure. The broader indices underperformed, declining between 0.6% and 0.9%.
• Stock Highlights: Titan Company, Tata Consumer, ITC, NTPC, and Adani Ports were among the top gainers, while L&T, ONGC, Hindalco, Shriram Finance, and Bajaj Finance were among the top losers.

Trading Strategies

• Nifty Outlook: The Nifty has entered a correction phase, with potential correction targets at 24,000 – 23,800. A minor pullback towards 24,550 – 24,600 should be viewed as a selling opportunity.
• Bank Nifty Outlook: Bank Nifty broke below the support zone of 51,900 – 52,100, indicating a potential correction towards 51,290 – 50,580.
• Investment Approach: Given the volatility, investors are advised to maintain a cautious stance with a trailing stop-loss. Defensive sectors such as FMCG, pharma, and IT are recommended for long trades, while overbought themes like defense, railways, and select PSUs should be avoided.

Long-Term Outlook

• Fiscal Prudence and Growth: The budget's emphasis on fiscal discipline while ensuring growth impetus is a positive sign for the medium to long-term market outlook.
• Capital Gains Tax: The increase in LTCG tax to 12.5% and STCG tax to 20% may affect market sentiment in the short term, but the long-term growth trajectory remains favorable.
• FPI Activity: Continued net buying by Foreign Portfolio Investors (FPIs) in both equities and fixed income supports liquidity flows and market stability.

Conclusion

The budget has set a balanced approach focusing on fiscal consolidation, growth, and employment generation. While the immediate market reaction has been mixed, the long-term outlook remains positive with strategic investments in key sectors and prudent fiscal measures. Investors are advised to navigate the short-term volatility with caution and focus on sectors with strong growth potential.