Union Budget 2024 remains largely neutral for Indian stock markets

Overall, market reaction to the budget was neutral.

Investors felt the effects of changes in tax rates (positive for salaried employees) and capital gains taxes (CGT, negative due to the removal of indexation and increases).

The remaining proposals largely concern support for rural development, share buybacks taxed as dividends, changes to tariffs affecting many sectors, higher spending on clean energy, and so on.

There has been some moderation in the growth of capital expenditure in the defence, fertiliser, railways, roads and urban infrastructure sectors.

Foreign companies will have to pay lower taxes, and the so-called “business angel” tax for startups has been abolished.

There is no direct boost to consumption, which was widely expected after the elections.

If the new employment incentive program works as expected, it will create new jobs and therefore lead to increased consumer spending.

Tax simplifications should help businesses in general.

Hence, Nifty index valuations remain at around 21x price-to-earnings (P/E) of expected full-year earnings per share.

Mid- and small-cap stocks command a 60 percent premium over large-cap stocks.

Income tax cuts could indirectly benefit discretionary consumerism and fast-moving consumer goods (FMCG) stocks.

Continued (albeit moderate) emphasis on infrastructure development, affordable housing and rural development should help improve sentiment in the cement, paints, pipes, tiles, sanitary ware, cables and wires and other construction materials sectors as demand in these sectors is expected to increase directly or indirectly.

The reduction in PMGSY allocation may, however, prove to be a negative factor to some extent, although other rural programmes may offset its impact.

The reduction in tariffs on mobile phones could have a negative impact on Dixon, and could indirectly help telecoms companies if it increases demand for 5G phones and therefore demand for data.

Other metal tariff cuts will help the jewellery and electric vehicle (EV) sectors.

Renewable energy continues to be in the spotlight, and with the repeal of the angel tax, this could be a good year for renewable energy and internet businesses that the private equity/venture capital (PE/VC) community is looking to support.

From a technical point of view, the market tends towards continuity.

The bull market should continue, but there is no macroeconomic impulse.

The Vix index has fallen over the past two sessions, which is usually a bullish signal.

Mid and small caps outperformed Nifty, which is not a surprise.

Among the sector moves, the Nifty Media index fared best – perhaps on the hope that higher discretionary income will translate into more money spent on entertainment.

Growth was also recorded in the fast-moving consumer goods and consumer durables sectors.

The fast-moving consumer goods (FMCG) sector performed poorly last year, despite posting a positive rate of return of around 18 per cent.

This budget could accelerate the growth trend. Consumer durables have been strong, with a 40 percent return over the past year, and this sector could also see an acceleration in the trend if disposable incomes rise.

While there are no specific measures that impact the pharmaceutical and healthcare sectors, both sectors recorded growth above the benchmark.

The information technology sector also seemed to be largely unaffected, but the sector index was up 13 percent in the past month and gained slightly after the budget.

The Nifty Oil & Gas index looks a bit shaky as oil marketing companies (OMCs) were hoping for compensation for the cut in gas prices, but that did not happen.

The Auto index also fell slightly. Infrastructure-dependent sectors such as Industrial Metals and the broader Nifty Infra index fell as a slowdown in growth in infrastructure allocations seemed to disappoint the market.

The real estate index also fell, perhaps for the same reasons.

However, the worst performance of stock prices and indices was recorded in the financial sector.

The Bank Nifty index fell and the Nifty Private Banks index fell further.

The Bank Nifty index is strongly tilted in favour of large private banks.

However, a sell-off in shares also occurred in public sector banks, as well as in the financial services sector and the non-bank financial companies sector.

Banks and financial institutions have a large share in the Nifty index, which could have a negative impact on the overall market trends if the situation continues.

In summary, the market remains in a tight price range in the short term, and the long-term trend remains upward.

A break of the medium-term trend by 3 per cent plus or minus – say 750 points on the Nifty – would reset the medium-term trend, but this budget has clearly not provided any incentive for that.

Union Budget 2024: Full Coverage