Sensex, Nifty today: Domestic stock markets have kicked off the budget week with a sharp downtick as the consistent FIIs outflows dented the market sentiments. Muted Q3 earnings by India Inc, inflationary concerns delaying the rate cuts and temper tantrums over Trump's economic policies is denting the market sentiments ahead of the Union Budget 2025, due this Saturday, February 1. Analysts at Dalal Street are largely ruling out any pre-budget rally at Dalal Street.
BSE Sensex tumbled around 850 points on Monday, while NSE's Nifty50 index crashed more than 265 points on Monday. The pain in the broader market was severe, with smallcap and midcap indices cracking as much as 4 per cent in Monday's trade. While headline indices are down 12 per cent from their 52-week highs, the broader market indices have cracked up to 17 per cent from their 52-week highs. Interestingly, Sensex and Nifty have breached their previous budget (July 23, 2024) levels.
Not just the budget, the Indian stock market will also ride through the turbulence of futures & options (F&O) contracts for the January 2025 series on Thursday, January 30. Along with them, weak earnings from the broader market companies, rich valuations, FIIs short positions are jittering the sentiments for the markets.
Any potential pre-budget rally may materialise in the latter half of the week. Short-term moves in the markets are driven by positioning in the derivatives market, said Devarsh Vakil, Head of Prime Research at HDFC Securities. "Strong hands have substantial short positions in both Index and stock futures. Foreign Institutional Investors (FIIs) have maintained a bearish stance in the Index Futures segment since the start of the January series, with net sales reaching Rs 17,000 crore," he said.
The market's behaviour will likely provide crucial signals for the upcoming period. Historical data shows that a series' ending has minimal correlation with the subsequent series' performance. Therefore, market movements on Thursday and Friday preceding the budget warrant close attention – and any pre-budget rally will materialize in the last 2 sessions of the week, Vakil added.
The market sentiment has turned weak. sustained FPI selling of Rs 69,000 crores in January thus far, is impacting the market. Will Trump walk his talk on tariffs and other threats including tariffs on China and other countries, is a question that is being asked in economic and market circles, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
"This 6-day week is likely to be highly volatile with other major events like the Fed decision and the Budget in India. The market is looking forward to fiscal stimulus through income tax cuts in the Budget. If the expectations are met, there can be a relief rally in the market. But if a rally is to sustain, we need data indicating growth and earnings revival," he said.
Investors remain skeptical, reflecting a shift from last year’s cautious optimism to restrained expectations. Market sentiment is notably subdued, cautious and dominated. The current economic landscape presents challenges, with weak consumption trends, persistent inflation, and a lackluster earnings season dampening pre-budget enthusiasm, said Trivesh D, COO at Tradejini.
"Driven by expectations of growth-oriented policies, post-budget clarity on fiscal discipline and sectoral incentives may lead to a recovery. While tax rationalization and export-driven reforms are anticipated, the likelihood of significant tax cuts seems slim. For now, the market appears poised for volatility, with investors assessing whether the budget delivers the necessary growth catalysts to reignite confidence, he adds.
Emkay Global expects a relatively quiet budget, with a focus on continuity rather than dramatic change. A countercyclical stimulus is unlikely, as it would entail straying from the pre-announced consolidation path. The heavy lifting would have to be done by relaxed lending guidelines and monetary easing further down the line.
"We remain cautious on Indian equities. The markets may be especially vulnerable in Q1CY25 due to sustained FPI selling and weak earnings support. We are, however, more optimistic on the longer-term outlook. We expect a discretionary consumption rebound in 2HCY25, driven by easier credit and a hiring bounce-back," it added.
The volatility in the crude oil price, depreciating Indian currency and the firm US dollar index is also impacting the sentiment for Dalal Street. The rupee depreciated 22 paise to 86.44 against the US dollar in early trade on Monday, weighed down by the strength of the American currency in the overseas market and a muted trend in domestic equities.
Vakil from HDFC Securities prefers large caps over mid & small caps for CY25 as it offers a better risk reward. "Stock Prices are slaves to earnings. We will maintain a cautious stance until we see both accelerating earnings growth momentum and more reasonable valuations before taking a more aggressive position in the markets," he said.
Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities said that markets shall look out for the US Bond yields, which represent the cost of funds for the consumers and the businesses across the world. As the cost of funds goes up it affects the profitability of the corporations. This is one of the reasons for our markets to decline.
Sheth cited liquidity from foreign portfolio investors (FPIs), attractive valuations and momentum indicators to be key factors that may stage the return of bulls at the bourses.