All eyes firmly set on upcoming Union Budget

The short-term trend of the market seems to have reversed from all-time highs. The upcoming Union Budget is expected to lay a strong foundation for India’s economic, infrastructure, and social development for the next decade, with strong reform measures and a visionary blueprint for growth. Observers believe that the government would strike a balance between Fiscal Deficit, Capex for growth and Social spending

In Focus:

• Markets await any adverse changes in capital gains tax
• If there’s no change in capital gains tax, it would be considered positive
• Market breadth was very weak
• More number of shares declining than advancing
• Short-term trend of the market seems to have reversed from all-time highs

Buoyed by IT giant Infosys’ impressive Q1 performance and revised full-year guidance, strong economic tailwinds, firm FII buying, India’s stock market surged with both NSE Nifty and BSE Sensex reaching new record highs during the course of week ended. Despite mild sell off on Friday, both the Sensex and the Nifty ended with modest gains of 0.9 per cent to close at 80,605 and 24,530 respectively. However, market breadth was very weak with more number of shares declining than advancing. The short-term trend of the market seems to have reversed from all-time highs. The upcoming Union Budget is expected to lay a strong foundation for India’s economic, infrastructure, and social development for the next decade, with strong reform measures and a visionary blueprint for growth. Observers believe that the government would strike a balance between Fiscal Deficit, Capex for growth and Social spending.

The continuation of the existing Capex agenda (Infrastructure, Railways, Defence, Renewable/Clean energy), higher budgetary allocation to revive the rural economy, job creation and a firm roadmap for ‘Viksit Bharat’ by 2047 would be the key theme for the Union Budget 2024-25. Markets would also keenly await any adverse changes in the capital gains tax on equities. In case there is no change in capital gains tax it would be considered positive for the Indian equity markets. Additionally, tax breaks for the middle class are also a possibility, all of which could provide a significant economic stimulus. This will be the first budget under the Modi 3.0 administration, presented amidst a robust economy and healthy fiscal situation, further strengthened by a hefty dividend from the RBI and positive monsoon rains. Known for her focus on fiscal discipline, substantial capital investment, and initiatives to promote self-reliance and bolster manufacturing, Finance Minister Sitharaman’s past budgets have reflected these priorities.

Despite the increased financial demands of the two key allies (estimated to be around 0.2% of GDP in FY25), observers expect the government to use the space afforded by higher RBI dividend (~0.4% of GDP) and lower FY24 fiscal deficit (~0.2% of GDP) and suggest structural reforms in the agriculture sector to enhance productivity, market access, and income opportunities for farmers. It is pertinent to note that the International Monetary Fund (IMF) upgraded India’s 2024 growth forecast to 7 per cent, citing rising private consumption, particularly in rural areas. Market will be reacting to the earnings of major companies like Reliance Industries (RIL), HDFC Bank, Kotak Mahindra Bank and Yes Bank, when they resume trading on Monday. Coming week would see earnings of major companies like Bajaj Finance, Hindustan Unilever (HUL), Axis Bank, Bajaj Finserv, Larsen & Toubro (LT), SBI Life Insurance Company, Nestle, Cipla, IndusInd Bank, Dr Reddy and ICICI Bank. Looking ahead, the market momentum is expected to continue, with individual stock performance playing a larger role. However, all eyes are firmly set on the upcoming Union Budget, which will likely dictate the next stage of the market rally.

F&O/ SECTOR WATCH

After making record highs, NSE Nifty experienced a correction of over one per cent from top, while the Bank Nifty continued to consolidate at its record high for the third consecutive week. Defensive buying witnessed in the market, resulting in significant gains for IT and FMCG stocks, while profit-taking was seen in media, metal, and PSE stocks. In the derivatives market, Nifty options indicated the highest Call Open Interest (OI) at the 25,000 and 24,800 strikes, while the highest Put OI observed at the 24,500 and 24,000 strikes. As for the Bank Nifty, the highest Call Open Interest was stood at the 53,000 and 52,500 strikes, while the highest Put Open Interest was seen at the 52,000 and 51,000 strikes. Breaching of 24,500 with volumes could trigger a sell-off towards the immediate major support level around the 24,000. Contrarians advise buying puts to protect portfolios. Skeptics indicate a fall of 1,000 points during the Budget session. Implied Volatility (IV) for Nifty’s Call options settled at 13.28 per cent, while Put options concluded at 14.07 per cent.

The India VIX, a key market volatility indicator, closed the week at 14.51 per cent. As we approach the upcoming Budget week, it is important to note that the volatility index may experience an uptick. This is due to India VIX teetering on the edge of a consolidation breakout on the daily time frame leading up to the Budget week. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.33 for the week. In upcoming week, the market’s direction depends on the announcements made in the Union Budget. Nifty may test upside resistance at 24,800 whereas on downside support is placed at 24,300. Stock futures looking good Alkem, Bajaj Finserv, ITC, LTI Mindtree, Mphasis, MGL and SBI. Stock futures looking weak are Asian Paints, DLF, Jindal Steel, Ramco Cement, Titan Inds, Tata Power and PVR Inox.

(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)

Oriental Carbon & Chemicals Ltd

Oriental Carbon & Chemicals Ltd is engaged in manufacturing of insoluble sulphur. The company’s segments include Chemicals and Investments. The company’s insoluble sulphur includes regular grades, high stability grades and special grades. OCCL has for long been the largest Indian insoluble sulphur manufacturer and provider. The company manufactures commercial grade, battery grade sulfuric acid and Oleum. The company’s sulfuric acid is used as a dehydrating agent, catalyst and active reactant in chemical processes, solvents, and absorbents. Its battery grade is used in storage batteries, rayon, dye, acid slurry and pharmaceutical applications.

Its commercial grade is used in the manufacturing of steel, heavy chemicals, and super-phosphates. The company is focusing on the manufacture of value-added insoluble sulphur grades with the objective to beat the competitive commodity end of the marketplace. The company’s total debt declined significantly during the course of the year as the company repaid/prepaid debt (the company continued to prepay debt in April 2024). The company expects to achieve a higher capacity utilisation and report a higher capital efficiency in the coming quarters also. Buy on declines for medium term target of Rs600.