In one stroke, FM put stock market on a downward journey, and how!

The domestic equity market moved in a slow pace leading to the Union Budget. However, Dalal Street looked disappointed post Budget announcement. Holistically, the Budget was wholesome, rational and long-term goal-oriented.

Nirmala Sitharaman has stressed on measures to improve inclusive growth, reduce income inequality, build digital ecosystem, create a cashless economy and bring about a transparent and honest regime.

There were certain hard-core punches, which will change the dynamics in certain industries.


But what surprised was the move to increase public shareholding in companies from 25 per cent to 35 per cent. This is probably the biggest wealth-transferring move in the interest of larger good of the country, but from the stock market’s perspective, there will be an overhang of supply and the market at large will face the repercussions. This will change the demand-supply equation in the capital market and a number of largecap companies with a high promoter shareholding will bear the brunt.

The February 2019 Interim Budget was short-term oriented, given the pre-election compulsions, while post-election, the focus has shifted towards India’s long-term growth dynamics. 100 per cent FDI in insurance intermediaries will aid the insurance companies to boost premium growth and get a spot on the global financial map in order to mobilise global savings as insurance is highly underpenetrated with exposure to ~3.5-4 per cent in India.

Event of the Week

June car sales shrank by double digits for the third consecutive month in a row and the Budget did not look rosy from the auto company’s perspective. They will have to shell out more and put fresh capex in order to roll out electric vehicles as the Budget evidently took steps to boost electric vehicles. Plus, the proposed development of new metros will further dent demand for cars, especially in the passenger vehicle segment. This will be a huge negative for auto companies.

Technical Outlook

Nifty50 has finally turned downward and made a lower top for the first time, indicating a likely change in trend. The market has resolved the state of confusion and finally turned sharply lower, which will now take it all the way down to 11,400 level, the gap which had remained unfilled. ‘Sell on rise’ should be the strategy for traders in the short term.

Expectations from the Week

With the much-awaited event finally over, its overhang will continue next week as the offshoots of certain proposals will be visible in the capital markets. As the divergence between Nifty and Nifty Midcap/ Smallcap indices was way above the past few years in June, there is higher likelihood of a larger correction in largecaps compared with the broader market. A higher correction is, therefore, in the making and investors must look to book profits in largecap companies as the process of mean reversion has started. Years of outperformance will now be followed by prolonged under-performance.

Divest and avoid autos and highly-valued companies having high promoter holdings. The Nifty50 closed the week at 11,811, up 0.19 per cent.