Markets on Budget day: Nifty50’s recent rally to sustain on policy direction in budget

Indian equities are trading on a lacklustre note ahead of the key budget event slated for tomorrow. Infact, the markets have recouped the earlier losses in the day on account of increasing global political uncertainty and are trading flat with a negative bias. Now since we head to the crucial full Budget eve on Tuesday (July 23), here’s how market experts expect the markets to perform going into the budget day and following days:

InCred Equities held that policy outlook in the Budget is key to sustain the recent Nifty 50 rally. Importantly since the exit poll outcome, the bluechip index Nifty50 has scaled nearly 5.5 per cent in less than 2 months. 

The brokerage highlighted that the recent rally has been aided by a reversal in foreign institutional investors’ flows into the positive territory and a sustained inflow into domestic mutual funds. Considering the slow start to earnings growth in 1Q, policy direction in the upcoming Budget will be key to sustain it, as the forward P/E premium of India over
MSCI emerging markets has touched +2SD above the mean level, it added.

The brokerage pegs its Nifty50 target at 25,683, a marginal upside from the current levels, with a preference for largecaps. Further it maintains its Overweight rating on the capital goods, cement, electronics manufacturing services (EMS) and financial sectors.

Suman Bannerjee, CIO, Hedonova believes that the markets will see significant market volatility, driven by high expectations for tax relief in personal income tax and capital gains taxation. A favorable budget, increasing exemption limits or rationalizing tax slabs, could enhance market sentiment and stimulate a rally, particularly in consumption-driven sectors. Conversely, if the government prioritizes fiscal consolidation without offering tax relief, the market may experience a steep correction. 

Additionally, concerns about potential regulatory changes add to the cautious atmosphere. Overall, the market's mood is one of cautious optimism, contingent on Finance Minister Nirmala Sitharaman's announcements to shape the immediate market reaction, adds Bannerjee.

Aamar Deo Singh, Sr. Vice President of Research, Angel One highlighted that this Budget may is is projected to put a focus on industries including infrastructure, FMCG, fertilisers, healthcare, and defence.

Deepak Jasani, Head of Retail Research at HDFC Securities noted that there isn't much correction expected before the Budget and the correction post that may be short lived unless impacted by some other trigger. 

What should retail investors do as we head to Budget 2024 under Modi 3.0?

Jasani advises retail investors to review their asset allocation and equity portfolio and rebalance their excess holdings in equities (due to the rise in values) into other asset classes and in the process take some profits out of stocks that have run up much ahead of their fundamentals in the past few months.

Singh advises investors to be prudent that investors exercise caution ahead of the budget  and consider investing opportunities once the budget's fine print is released.