It has been a month that the Modi 2.0 government presented its first Budget and a review reveals that it has failed to enthuse the markets.
Benchmark indices have breached crucial support levels on the downside, largely led by global and local factors.
The average market capitalisation of the BSE-listed companies fell from Rs 151.35 lakh crore on the Budget Day, July 5, to Rs 138.37 lakh crore on August 5, wiping out Rs 12.98 lakh crore.
A large part of the selling can be attributed to foreign institutional investors (FIIs), which have pulled out more than Rs 13,000 crore from Indian equity markets, while they were net buyers in the debt segment for over Rs 8,000 crore, Securities and Exchange Board of India (SEBI) data shows.
The Budget proposed a higher tax surcharge on “individuals and trusts” earning more than Rs 2 crore and Rs 5 crore annually. Once implemented, the move could adversely impact foreign portfolio investments (FPIs) that are set up as non-corporate vehicles.
After the recent exodus of FIIs, senior bureaucrats in the prime minister’s office recently met top finance ministry officials to discuss the surcharge but nothing has come of it yet.
“The market fell beyond expectations and was triggered by the tax on FPIs since the Budget. The market is likely to remain under pressure until further clarity on this comes,” Ashish Nanda, EVP & Business Head, PCG, Commodities and Currency Business, Kotak Securities, told Moneycontrol.
“As per current fundamentals and earnings, Nifty fall can get arrested between 10,800-10,700 levels. For fresh investors, this presents an opportunity to invest in largecap companies with a long-term view, as most of the stocks are trading 10-20 percent off from their recent highs.”
Small & midcaps have been the worst hit. The S&P BSE Midcap index is down 9 percent while the S&P BSE Smallcap index has plunged 13 percent since July 5.
More than 50 percent of the BSE500 stocks fell in double digits. As many as 283 stocks, or 56 percent of the names, have fallen 10-60 percent since the Budget day.
Stocks that fell in double digits include Godrej Industries, KEC International, Page Industries, Sterlite Technologies, Bosch, Avanti Feeds, Adani Enterprises, Andhra Bank, Coal India, Axis Bank, RBL Bank and Coffee Day.
Table: The chart includes a list of 20 out of 283 stocks in the BSE500 index which fell 10-60%. The table is for reference and not necessarily for buy or sell ideas.
Investors were also hoping for some stimulus from the government to kick start growth in Asia’s third-largest economy, which has been downgraded by global and local analysts.
Crisil recently revised India’s gross domestic product (GDP) growth estimate by 0.2 percentage points for FY20. The cut to 6.9 percent comes amid slowing global growth and weak monsoon in June.
The US-China trade war is a big global factor at play. At home, sluggish data for the first quarter, slowdown in earnings and a below-normal monsoon are some of the domestic factors weighing on the sentiment.
Considering the current economic slowdown, muted earnings and stretched valuation, we would continue to remain cautious until there are meaningful signs of revival in corporate earnings. However, the upcoming key events would have a bearing on Indian markets and would dictate the trend.
The street would be expecting at least a 25bps cut by the RBI, however, the commentary on growth and inflation outlook would be a crucial factor, he said. The monsoon progress would also be important for the markets in the near term, as an increase in the rain deficit would adversely impact the inflation outlook,
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