Market hopes for a repeat of 2021; all eyes on Modi stocks, LTCG, STT

From the markets perspective, however, all eyes will be on announcements, if any, related to long term capital gains (LTCG) tax and also Securities Transaction Tax (STT) as these two directly impact the investor community.

Will she or won’t she? That is the question.

When Finance Minister Nirmala Sitharaman rises to present her seventh successive budget today, the markets will be waiting with bated breath to see if she can repeat the feat she achieved in 2021 when the Sensex jumped over 2,300 points or five percent – the best-ever post-budget reaction seen in over two decades.

Similar to 2021 when the budget was presented in the backdrop of an unprecedented global pandemic – the expectations this year are quite high, with experts pinning their hopes on the newly-formed government continuing its focus on core sectors such as infrastructure, defence and manufacturing, along with a renewed thrust on new-age segments too.

From the markets perspective, however, all eyes will be on announcements, if any, related to long term capital gains (LTCG) tax and also Securities Transaction Tax (STT) as these two directly impact the investor community.

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Experts have been unanimous in saying that any negative surprises related to these taxes would adversely impact the sentiments of the markets that have been volatile with an upward bias in the recent past.

Any negative surprise in areas like income tax, LTCG, STCG, or STT could have a short-term negative impact, says Krishna Appala, Senior Research Analyst, Capitalmind Research.

This assumes significance as a section of the market has already suggested to the government that STT for high frequency algo traders in the derivatives segment should be hiked.

Also Read: Budget 2024: FM urged to hike STT on HFT F&O trades to shield retail investors

In the last three months, the Sensex has gained nearly 12 percent or 8,620 points. The broader Nifty has been up 12.37 percent.

On Tuesday, however, when the markets open for trading, it would be following two successive days of losses as concerns related to high valuations and positive triggers going ahead are already making a large section of the market nervous.

Incidentally, CLSA’s 'India Bull Bear Index' is currently showing 92 percent bullishness – the highest ahead of any Union Budget in the past 15 years – but the global financial major has also expressed a word of caution, stating that such an extreme sentiment reading coupled with stretched valuations make the domestic market setup extremely vulnerable going into the budget.

It is interesting to note that while FM Nirmala Sitharaman has presented six budgets till date, the markets have reacted positively on three instances while dipping on the other three occasions. The worst was witnessed in 2020 when the markets fell by over two percent on the day of the budget.

Meanwhile, in terms of stock-specific action, the so-called Modi stocks will be in the limelight after the recent subdued performance.

The 'Modi stocks' consist mainly of state-owned companies such as PFC, REC, HAL, SAIL, BPCL; banking names like SBI, PNB, Canara Bank, as well as infrastructure companies and those belonging to corporate groups like Reliance Industries, Adani Enterprises, and Adani Ports & SEZ.

While the real challenge for the Modi 3.0 government would be to balance three key metrics - economic growth, inflation and fiscal consolidation – the Economic Survey released on Monday had its share of bearish statements as well.

“If equity market valuations significantly exceed the real economy's capacity, it signals market instability rather than resilience,” stated the Survey report.

To sum up, there have been a total of 29 budgets presented since 2000 and the markets have gained on 13 occasions while losing ground on the other 16. But, more importantly, the Indian stock markets have grown 15x in the last 24 years.

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