The Federal Reserve Building stands in Washington
Credit: Reuters Photo
This week is crucial for the equity markets as the United States Federal Reserve, Bank of Japan and Bank of England will be announcing their interest rate decisions. India’s July fiscal deficit and GST collection data will also be watched.
Indian equities have shown strong resilience with sharp outperformance from broader markets. Nifty reached new highs and is inching towards the crucial level of 25,000 with support from sectors like IT, pharma, auto and FMCG.
Last week Nifty continued with its uptrend for the eighth consecutive week, despite volatility after the Union Budget. it touched a new high of 24,861 and closed with gains of 304 points or 1.2%. Broader markets rallied with Midcap 100 and Smallcap 100 up 3.3% and 2.5% respectively. Except for BFSI and realty, all sectors ended with gains. Auto, pharma and media gained more than 5%. IT, FMCG, energy and infra gained 2-3%.
The key highlight of last week was the Union Budget which highlighted the roadmap of the government’s agenda for India's economic development. The budget emphasised on employment and skilling as themes, apart from the Modi government's usual focus on infrastructure.
On the macroeconomic front, the government maintained its focus on fiscal consolidation, setting a fiscal deficit target of 4.9% of GDP for FY25, down from 5.1% set in the Interim Budget, and aiming to reduce it further to 4.5% by FY26. Furthermore, the budget maintained its focus on capex, with capex maintained at Rs 11.11 lakh crore, same as the interim budget
Contrary to market expectations, there were no major changes in rural spending allocation for FY25 budget estimates compared to the interim budget estimates, which remained at Rs 5.6 lakh crore. In a surprising move, the government increased long-term capital gain tax from 10% to 12.5% and short-term capital gains taxes from 15% to 20%. It also raised the Securities Transaction Tax (STT) for the Futures & Options (F&O) segment, and made significant changes to the taxation of other asset classes. Despite initial concerns in equity markets over the proposed increase in capital gains taxes, they recovered sharply.
Q1FY25 earnings season has been moderate so far with a select few meeting the street estimates. Banking stocks witnessed profit booking post weak results
On the global front, cues were mixed with weak set of results posted by technology companies along with below expected PMI data. However Q2 US GDP came in better than expected which pulled sentiments up. Now investors would focus on interest rate decisions.
(The author is head of retail research, Motilal Oswal Financial Services Ltd)