Markets Set For Further Rally Amid Positive Macro Factors

Key results to watch out in the week ahead include from Asian Paints, Titan, Airtel, Power Grid, Divi’s Labs, Tata Power, Torrent Power, Info Edge, Swiggy, SBI, ITC, Trent, Britannia, LIC, M&M, NHPC and Oil India

Spurred by short covering, market closed on a positive note ahead of the Union Budget 2025. After the unveiling of the Union Budget for FY26 that was pragmatic and incrementalist; BSE Sensex and NSE Nifty closed on a flat note. Nifty was down marginally by 0.11 per cent and Sensex was flat and up 0.01 per cent. Bank Nifty was down 0.16 per cent. In comparison to the benchmark indices, the Small and Midcap indices saw heightened activity. The BSE Midcap index was down 0.49 per cent and the BSE Smallcap index was up 0.28 per cent. FIIs participation was very minimal. However, the actual reaction and how the market has really discounted the Budget factor can be witnessed only in the week ahead. Analysts say this will play out in sectoral and stock-specific action. Post-Budget reaction of FIIs will be closely monitored by market participants as they have sold equity worth Rs86,185 crore in January.

The rupee continued to be weak against dollar, however, closed January on a flattish note with the support from RBI and positive DII activity negating the unabated FII outflows and month-end dollar demand. Analysts expect the rupee to trade with negative bias on strength in the US dollar and persistent FII outflows. Uncertainty over tariffs by the US administration could pressure the rupee. While the roadmap charted in the Union Budget is a critical factor, global influences are also likely to play a major role in FII investment decisions. Key factors such as global interest rates, currency strength, geopolitical developments, and the performance of other economies will also be under consideration.

India’s business activity hit a 14-month low in January, with the services sector being the main contributor to the slowdown. It is anticipated that the Union Budget focus on stimulating consumption, boosting capital expenditure, and maintaining fiscal discipline, among other priorities may give fillip to the markets. By doing away with tax on income up to Rs 12 lakh under the new tax regime, the government is looking to give a bump to consumption, which will be positive for FMCG, auto and few other sectors. Goods and Services Tax (GST) collections rose to a nine-month high of Rs1.96 lakh crore in January, staying above the Rs1.7 lakh crore mark for the eleventh consecutive month. In the near term, the next big trigger for market would be the decision of MPC of the Reserve Bank of India (RBI) in its meeting later this week (Feb 5-7).

Observers widely believe the RBI to usher in rate cuts, which will be the first in over four years. The RBI has injected massive liquidity into the banking system in recent days, which some economists take to mean a rate cut is imminent, despite relatively high inflation. Key results to watch out in the week ahead include from Asian Paints, Titan, Airtel, Power Grid, Divi’s Labs, Tata Power, Torrent Power, Info Edge, Swiggy, SBI, ITC, Trent, Britannia, LIC, M&M, NHPC and Oil India.

It’s far too easy for investors to lose perspective. Whenever something big goes wrong, a lot of people panic and sell their investments. Looking at history, the markets recovered from the 2008 financial crisis, the dotcom crash, Covid Pandemic and even the Great Depression, so they’ll probably get through whatever comes next as well.

F&O/ SECTOR WATCH

The Budget and settlement week witnessed robust trading with rollovers in Nifty futures at 81 per cent (last month 78%), above 3-month average of 77% indicating strong momentum for the February series. Similarly, the Bank Nifty rollover is at 76.82 per cent, an increase from last month’s 69.36 per cent and the three-month average of 68 per cent, reflecting strong momentum. Increased Nifty rollovers indicate that positions were rolled at market lows, primarily within the 23,100-23,050 futures range. On other hand, market wide rollovers stood at 89 per cent (last month’s market wide 90%).

Rollover Cost is at modest 0.21. Looking at Nifty’s option data, the highest Call Open Interest was observed at the 24,000 and 23,500 strikes, while Put writers were active at the 23,500 and 23,000 strikes. Implied Volatility (IV) for Nifty’s Call options is at 17.06 per cent, while Put options is at 18.72 per cent. The India VIX, a key indicator of market volatility, concluded the week at 17.39 per cent. The Put-Call Ratio of Open Interest (PCR OI) stood at 1.15 for the week. For the upcoming sessions, Nifty has support at 23,000 and may face resistance at 24,000. Some of the key sectors that are expected to be in the limelight going ahead on account of the Budget announcements are Agriculture, EVs, Manufacturing, Shipbuilding, Power, Infrastructure, and Insurance.

As the Budget places Indian consumers at the centerstage of economic growth, it also raises questions on the durability of the rally in capex stocks, which are often known as Modi stocks. This year’s budget marks a distinct shift from incremental capex push towards a direct attempt to boost consumption by giving tax relief to the middle class.

Stocks looking good are ABFRL, BEL, Crompton, M&M, NBCC, Titan and UPL. Stocks looking weak are ABB, BOB, Berger Paints, Canfin Homes, Nykaa, Syngene and Polycab.

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

STOCK PICKS

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