Dubai: A recovery of Indian stock markets could get delayed as investors take time to digest the many implications in the latest federal budget, released on February 1.
The lack of a significant rebound on Monday (February 3) indicated investors were still struggling to find answers to whether the promised recovery of the economy was in sight. The Sensex and Nifty benchmark indices edged up 0.3 per cent on Monday after having lost about 2.5 per cent each on Budget Day Saturday.
“The market was expecting the budget to do more, given the domestic economic slowdown and global uncertainty,” said Gaurav Dua, head of capital market strategy of BNP Paribas’ India-based online broker Sharekhan. “Over the next few days, the market is expected to absorb the volatility.”
The budget was far from ground-breaking, experts had said earlier, given the limited room for manoeuvre amid depleting tax revenues due to slowing growth. This exacerbated worries as Asia’s third largest economy had grown at its slowest pace in six years, at 4.5 percent in the July-September quarter.
Brace for more swings
Market participants expect the volatility to continue in the near-term with the Budget skipping sector-specific stimulus packages for under stress categories such as real estate and non-banking financial services.
Instead, Finance Minister Nirmala Sitharaman proposed to liberalise the agriculture sector, committing to doubling farm income by 2022. A number of schemes were unveiled for higher crop insurance coverage, better storage of farm produce, and a scheme to facilitate faster movement of perishable goods.
“We believe the absence of any major announcements in the budget may weigh on investor sentiments in the short-term and we may continue to witness volatility,” said Ajit Mishra, Vice-President of Research at Religare. “We advise keeping hedged positions in such a volatile scenario, while investors should use this correction as buying opportunity and accumulate quality stocks on dips.”
Analysts at Goldman Sachs too said that it expects the risk-off stance to continue at least in the short-term. “Markets may gravitate back towards large-cap quality and defensive stocks, but in the medium term, we expect equities to be largely driven by underlying mid-teens earnings growth,” they wrote in a client note.
The manufacturing Purchasing Managers’ Index (PMI) for India shot up to 55.3 in January from 52.7 in December, a survey by data analytics firm IHS Markit showed. The study tracks new orders, output, jobs, suppliers’ delivery time, and stocks of purchases at around 400 manufacturers.
The manufacturing figure shows a “notable rebound, providing a breather that the economy may stabilize as mentioned in budget,” according to Vinod Nair, Head of Research at Geojit Financial Services.
“With valuations on the higher side, the results reported so far have been mostly in line with estimates,” Nair added.