A breakout of 3% plus or minus — say 750 points on the Nifty — would reset the medium-term trend but this Budget does not seem to have provided the triggers either way
Overall market reaction to the Budget was neutral. Investors absorbed the changes to the tax rates (positive for salaried class) and capital gains taxes (CGTs, negative due to the removal of indexation and hikes.
Other proposals largely pertain to supporting rural development, buybacks taxed as dividends, custom duty changes that impact multiple sectors, higher outlays for clean energy, etc. There’s some moderation in the growth of capex outlay across defence, fertilisers, railways, roads and urban infrastructure. Foreign companies will see lower taxes, and the so-called angel tax for startups has been abolished. Click here to connect with us on WhatsApp
There’s an absence of any direct boost to consumption, which was widely expected after the elections. If the new employment-linked incentive scheme works as anticipated, it will generate employment opportunities and will thereby lead to greater consumer spending. Tax simplifications should help companies in general.
Valuations for the Nifty therefore remain in line at around 21x price-to-earnings (P/E) for one-year expected forward EPS. Midcaps and smallcaps are at 60 per cent premium to largecaps. Income Tax cuts may indirectly benefit discretionary consumption and FMCG stocks. The continued (even if moderated) thrust on infrastructure growth and affordable housing, rural development should drive bullish sentiment for cement, paints, pipes, tiles, sanitaryware, cables and wires, and other associated building materials since demand is expected to improve directly or indirectly for those sectors.
