Vinod Nair, Head of Research, Geojit Financial Services speaking to Mint said that outcome of interim budget is muted, should not pose a concern for the market, which is eagerly anticipating the final budget set for July. The chance of volatility in the markets heading towards the national election is high. However, the environment is suitable to expect the pre-election rally to continue.
What are the key takeaways for the markets from the interim budget?
As expected, the outcome is muted, but should not pose a concern for the market, which is eagerly anticipating the final budget set for July. The most profound part in the interim budget is the drastic fall in the fiscal deficit target, which will lead to a reduction in bond yield, which is positive for the equity market leading to a reduction in risk premium. Although the overall increase in government capital expenditure is below forecasts, it is premature to draw firm conclusions, considering the potential for adjustments in the final budget. The market envisions the current government retaining its position in the upcoming national election.
How do we see the markets performing now post the interim budget?
Anticipating limited domestic catalysts, it is expected that the market will move in tandem with global market dynamics. The chance of volatility heading towards the national election is high. And India has the risk to underperform in the near term. However, the environment is suitable to expect the pre-election rally to continue.
What are the factors that can influence the markets from hereon?
The global trajectory will play a pivotal role, developed markets are maintaining a positive trend considering the likelihood of a Fed rate cut in May. A shift in monetary policy from a hawkish to an accommodative stance is favourable for the equity market. However, the economy is slowing down, which can have an effect on the market due to moderation in valuation and downgrade in earnings. At the same time, emerging markets are consolidating due to FIIs selling. Domestically, the upcoming Q3 results and their cascading effects on Q4 results will be instrumental in shaping market dynamics.
How has the result season panned out up till now?
Up to this point, Q3 results have shown stability, aligning largely with anticipated outcomes. However, there is a reduction in the growth on a sequential (q-o-q) basis, which is expected to spillover to Q4 as the EBIDTA margin is steady. The businesses that are highly oriented to the global economy are still muted. According to Q3 data, the market anticipates a shift in future earnings growth from high teens to low double digits in FY2025–26.
FPI were sellers during January. Do you see the trend reversing now?
Indeed, we believe it will reverse and presume that the recent sell-off is triggered as FIIs are in a sell-off mode. Notably, FIIs have been actively divesting in other EMs during CY23, while India has exhibited a positive trajectory, albeit with volatility. And India is impacted in the late patch of selling pressure led by below-par Q3 results in large caps. Hence, stocks with high exposure to FIIs are anticipated to remain susceptible in the near term.
First published in Mint