Nifty, Sensex end mildly in red; Budget over, now Q3 earnings to drive market returns

The market showed muted reaction to the Budget, choosing to prioritize upcoming earnings reports and global developments as drivers of stock- and sector-specific outperformance

Indian benchmark indices NSE Nifty, BSE Sensex ended with mild losses on 1 February as market participants' reaction to the budget announcements remained muted. Selling was observed in metal and pharma stocks, while PSU Bank stocks shined with the Nifty PSU index jumping over 2 percent.

The Budget is well grounded prioritising fiscal prudence and capital expenditure over consumption, according to analysts. Power, new energy, railways, defence and housing stocks may benefit.

The Sensex closed 106.81 points or 0.15 percent down at 71,645, and the Nifty fell 36.00 points or 0.17 percent to 21,689. About 1,431 shares advanced, 1,785 shares declined, and 86 were unchanged.

In the broader markets, BSE Midcap and Smallcap indices fell 0.4 percent and 0.2 percent respectively.

Sectorally, Nifty Metal led the losses, falling around 1 percent. Nifty Pharma, Infra and IT indices were also trading with losses of up to 0.7 percent. On the flipside, gains in Nifty PSU Bank, Auto, Bank, Energy and FMCG indices capped losses for the headline indices.

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"The domestic market was marginally disappointed by lower than expected infra spending in the interim budget. However, the government's commitment to fiscal prudence, targeting a fiscal deficit of 5.1 percent for FY25BE, is expected to improve the outlook on economic ratings," said Vinod Nair, Head of Research at Geojit Financial Services.

"This led to a significant drop in India's 10-year yield by 100bps to 7.04%, reflecting optimism due to lower-than-expected government borrowing. Meanwhile, the US FED's decision to maintain rates without clear guidance on future cuts dampened market sentiments," he added.

Fundamental view

Finance Minister Nirmala Sitharaman during her budget speech said that this budget will take up the promotion of tourism during her budget 2024 statement in Parliament. States will be urged to build tourism destinations to attract tourists and foster local commercial prospects. States will receive interest-free loans to promote tourism in their areas.

"To facilitate tourism initiatives projects such as port connectivity, island development will be initiated by the government. All of these announcements will be beneficial for companies in the travel, tourism and hospitality space. Companies like IRCTC, Ease My Trip, Yatra Online, Indian Hotel Company, and Mahindra Hotels could be in the limelight," said Raj Gaikar, Research Analyst at SAMCO Securities

Faster fiscal consolidation and consequent decline in the government’s market borrowing should drive bond yields lower and bond prices higher, said Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC. Another positive aspect is that the government has pegged only moderate growth in the non-capex expenditure.

"This should keep inflation under check and provide enough headroom to the RBI to cut interest rates. We expect long-term bonds to do well in 2024. Investors can capture this opportunity with dynamic bond funds which are invested in long-term bonds," Pathak said.

Technical view

The market showed muted reaction to the Budget, choosing to prioritize upcoming earnings reports and global developments as drivers of stock- and sector-specific outperformance, said Sunil Nyati Managing Director of Swastika Investmart.

"For Nifty, the key resistance zone lies at 21800-21850; a break above this level could pave the way for a new all-time high. Conversely, immediate support sits at 21,500, with 21,200 providing the next safety net, he said.

The Bank Nifty bulls demonstrated strength as the index closed above the 46,000 level. "The overall undertone remains bullish, with support at 47800 providing a cushion for the bulls,: said Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities.

"On the upside, the immediate resistance is positioned at 46500, and a breakthrough at this level is anticipated to trigger sharp short-covering moves in the market," he added.

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