All eyes on much-awaited Budget

Investors optimistic on Budget as it’s expected to lay out NDA govt’s vision for next 5 years and continue to focus on asset building; Markets will remain closed on Wed for Muharram

Major Cues:

• Budget proposals to be tabled on July 23
• Q1 earnings will be a key focus this week
• Expect stock-specific moves
• Mkts up for 6th consecutive week

Buoyed by the TCS Q1 dhamaka, renewed buying in FMCG stocks, good monsoon progress, the rising expectations over US Fed rate cut following softer than expected inflation data, and hopes of a growth-oriented Union Budget; the domestic stock market recorded gains for sixth consecutive week. BSE Sensex climbed 523 points or 0.65 per cent to 80,519, and NSE Nifty jumped 178 points or 0.73 percent to 24,502, while Nifty Midcap-100 and Smallcap-100 indices ended moderately higher, underperforming the benchmark indices.

FIIs have net bought Rs3,844 crore worth of equity shares in the cash segment in the week gone by, while the DIIs outpaced FIIs, purchasing Rs5,391 crore worth shares during the week. Higher participation by FIIs is one of the key reasons behind the sustained rise of Sensex and Nifty, which ended in the green for the sixth consecutive week to end at fresh record highs.

While DIIs, led by mutual funds (MFs), have been sustained buyers in all months of calendar year 2024 so far, FIIs have alternated between buying and selling. Retail inflation increased to four-month high of 5.08 per cent in June as food items, including vegetables, became dearer. The domestic WPI inflation data for June -- scheduled to be announced on Monday.

The latest data released by the CBDT coming just ten days ahead of the Budget indicates that in the financial year 2023-24, net direct tax collections have surged 19.54 per cent to Rs 5.74 lakh crore till July 11. The outstanding performance in direct tax collections, fuelled by the 7-8 per cent economic growth, has raised expectations that Finance Minister Nirmala Sitharaman will offer personal income tax relief in the upcoming Budget.

Ahead of the Budget, Q1 earnings will be a key focus this week as numerous companies, including HDFC Life Insurance Company, Bajaj Auto, BPCL, JSW Steel, Asian Paints, Infosys, Wipro, Paytm, Jio Financial Services and Reliance Industries are set to release their results. Additionally, pre-Budget discussions are expected to contribute to market volatility.

Expect stock-specific moves to gain traction due to the ongoing earnings season. All eyes are on the much-awaited Budget proposals to be tabled on July 23. For this bull market to continue without any roadblocks with respect to the budget, there are two very simple expectations from observers: first, this budget should lay out the vision of this government for the next five years, like they did in their earlier stint. The second one is that the government ideally should continue to maintain its focus on asset building, and nation building, which is by way of its investment in defence, infrastructure, road building, ports, railways, etc.

In order to maintain the equilibrium in the equity market, the government should not fall to the temptation of tinkering with any of the taxes concerning the capital market. The government should not trifle with respect to capital gains tax structure, STT, or derivatives on any of these matters. Markets will remain closed on Wednesday for Muharram.

F&O / SECTOR WATCH

Mirroring the shift towards large-caps in the cash segment, exuberant trading was seen in the derivatives segment propelling the Nifty to an all-time high. Driven by strong Q1 results from IT companies, the Nifty outpaced the Bank Nifty. Major gainers were IT, Oil &Gas, and FMCG stocks. PSU Banks, Metal, and Realty stocks were among the losers. In the options segment of the Nifty the highest Call Open Interest (OI) is at the 25,000 and 24,900 strikes, while the highest Put Open Interest was observed at the 24,400 and 24,000 strikes.

For the Bank Nifty, the highest Call OI stood at the 53,000 and 52,500 strikes, while the highest Put OI was seen at the 52,000 and 51,000 strikes. Implied Volatility (IV) for Nifty’s call options settled at 14.50 per cent, while Put options concluded at 15.22 per cent. The India VIX, a key market volatility indicator, closed the week at 14 per cent. The bulls need to be cautious if the volatility jumps to 15-16 levels. The Put-Call Ratio Open Interest (PCR OI) stood at 0.92 for the week. Punters expect the bullish momentum to continue in upcoming sessions.

Use dips to initiate new long positions, particularly as long as Nifty remains above the 24,200 levels. Information Technology stocks will continue to be in the limelight due to the good start to the earnings and outlook. Stock futures looking good are Atul, Birla Soft, Dalmia Bharat, Grasim, HCL Tech, SBI Card and TCS. Stock futures looking weak are ABB, Bharat Forge, Canara Bank, Coforge, Gujarat Gas, Jindal Steel and Tata Steel.

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

STOCK PICKS

HFCL Limited

HFCL Limited is a dynamic and technology-driven enterprise, providing next generation communication products and integrated network solutions to telecom, defence and railway sectors. The company is a telecom infrastructure enabler, which is focused on telecom infrastructure development, system integration, and manufacturing and supply of telecom equipment, optical fiber and optic fiber cable (OFC). The company provides turnkey solutions to telecom service providers, railways, defence, smart city and surveillance projects. Its segments include Telecom Products, Turnkey Contracts and Services, and other.

The company designs modern communication systems for metros, main-line railways and freight corridors, leveraging its capabilities in cutting-edge telecom products and solutions. It implements modern railway communication systems like video management systems for the Indian Railways. As one of India’s most prominent defence network implementers, the company offers end-to-end solutions, including optical transmission backbone network, GIS-based optical fiber network, end-to-end solutions for multiple hybrid microwave broadband radio links in remote areas, MPLS based dedicated communication network for defence forces and more.

The company is designing customised defence communication and electronic products, catering to defence forces. It has commissioned a facility for the manufacture of wire harnesses (automotive and aerospace) and polymer compounds at HTL Limited, a subsidiary. It entered technology collaborations with leading global players including Wipro, Qualcomm, CommAgility, VVDN Technologies, IP Infusion, NXP Semiconductors, Aprecomm, Metanoia, Capgemini Engineering, Olatech, AnexGATE and Xilinx among others. The company is evolving into a major defense communications and electronics products company. Buy on declines for target price of Rs250 in medium term.