Economic Survey 2023-24: Red-hot stock markets face Union Budget test | News on Markets
Economic Survey 2023-24: Red-hot stock markets face Union Budget test | News on Markets
From their record highs on Friday, the benchmark indices have dropped by over a per cent, while the India Vix, a gauge of market volatility, has surged nearly 10 per cent in the past week.
Investor sentiment, which remains largely buoyant, will now be tested by the Union Budget announcements. Any adverse changes to capital market-related taxation could trigger a knee-jerk reaction from investors, as the stock markets have not yet priced in any negatives, experts say.
The weakness over the past two days was stock-specific and largely a reaction to the April-June quarter (Q1) of 2024-25 (FY25) earnings.
On Monday, the markets were dragged lower by a correction in index heavyweight Reliance Industries (RIL), whose first-quarter profit missed Street estimates. However, gains in top-weight HDFC Bank and the extension of the rally in Infosys helped cushion the blow.
The S&P BSE Sensex ended the session at 80,502, down 103 points, or 0.1 per cent. The National Stock Exchange Nifty 50 ended at 24,509, down 22 points, or 0.1 per cent from its previous close.
Shares of RIL, which fell 3.5 per cent, were the worst-performing Sensex stock and pulled the index down by 321 points.
The oil-to-telecommunications (telecom) conglomerate reported a 5.5 per cent year-on-year (Y-o-Y) decline in consolidated profit to Rs 15,138 crore for Q1FY25, due to weakness in its oil-to-chemicals (O2C) division and higher depreciation costs.
The higher depreciation costs and weakness in the O2C division offset gains in retail, telecom, and the oil and gas upstream businesses. This marks the second consecutive quarter of declining profit, with net profit falling in three of the past five quarters.
“Mixed domestic earnings so far, especially from heavyweights, have dented investor sentiment. Moreover, the market is cautious ahead of the Union Budget, especially given the conservative growth forecast in the Economic Survey released on Monday,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Khemka added that the Budget is largely expected to be growth-oriented, with some measures aimed at addressing the rural economy likely to be announced.
“Investors will look for signs of further traction. We could see some volatility along with sector and stock-specific actions,” said Khemka.
The India Vix, or the fear gauge, rose 4 per cent to end at 15.4. Typically, stock prices experience wild swings on Budget Day.
In the past month, the Sensex and Nifty have each gained 4.3 per cent, suggesting that markets remain sanguine about the Budget.
The Economic Survey 2023-24, released on Monday, raised concerns about retail investor exuberance in equity markets and stoked fears of increased taxes on futures and options trades.
Noting a rise in interest among retail investors in derivatives trading, the Survey pointed out that the potential for outsized returns might be a major attraction.
The combined market capitalisation of BSE-listed firms rose by Rs 1.9 trillion.
“The conservative economic growth forecast for FY25, presented in the Survey, has introduced some spikes in volatility ahead of the Budget. Additionally, the below-estimated Q1 results from certain index heavyweights like RIL have added to concerns about a slowdown in earnings growth in FY25. Although the Budget is expected to be favourable, investors will closely monitor whether it continues to drive traction, given high valuations and the risk of a downgrade in earnings,” said Vinod Nair, head of research at Geojit Financial Services.
More than half of the Sensex stocks declined. Apart from RIL, Kotak Mahindra Bank, which fell 3.3 per cent, and ITC, which fell 1.7 per cent, were also major contributors to the Sensex declines.
First Published: Jul 22 2024 | 8:50 PM IST
