On Tuesday, July 23, the Indian stock market showcased remarkable resilience, managing to recover from a steep drop earlier in the session. The market was initially jolted by Finance Minister Nirmala Sitharaman's announcement of hikes in various capital gains taxes, including the Security Transactions Tax (STT), long-term capital gains tax (LTCG), and short-term capital gains tax (STCG). Despite these concerns, the Sensex and Nifty 50 indices closed the day almost flat, demonstrating the market's capacity to absorb shocks and stabilize.
Early Session Plunge
The announcement triggered a sharp decline, with the Sensex plummeting by 1,278 points, or 1.6%, to reach 79,224.32. Similarly, the Nifty 50 fell by 435 points, or 1.8%, dropping to 24,074.20. This dramatic fall was a knee-jerk reaction to the unexpected tax hikes, reflecting immediate investor anxiety and a sell-off in the market.
Impressive Recovery by Market Close
Despite the initial panic, the market showed significant recovery by the end of the trading session. The Sensex managed to close just 73 points, or 0.09%, lower at 80,429.04. The Nifty 50 also recovered, closing 30 points, or 0.12%, down at 24,479.05. This rebound indicates that investors re-evaluated the situation and found some confidence to re-enter the market, mitigating most of the day's losses.
Performance of Mid and Smallcap Indices
While the frontline indices managed to recover, the mid and smallcap segments underperformed. The BSE Midcap index experienced a loss of 0.74%, and the Smallcap index ended 0.18% lower. This suggests that smaller companies, often perceived as more vulnerable to market fluctuations, were hit harder by the day's events.
Sector and Stock Performance
Several major stocks influenced the market's overall performance. Shares of HDFC Bank, Larsen & Toubro, Reliance Industries, and ICICI Bank emerged as the top drags on the Nifty 50 index. In contrast, stocks like ITC, Titan, Infosys, and NTPC were the top contributors, helping to stabilize the index.
Expert Opinions on the Budget and Market Outlook
Pankaj Pandey, ICICI Securities
Pankaj Pandey, the head of research at ICICI Securities, described the Budget as fiscally prudent and structurally positive, despite the short-term dampening effect of the capital gains tax hikes. He noted that the fiscal deficit target was lowered to 4.9% of GDP, a significant improvement from the 5.1% announced during the Interim Budget. Pandey emphasized that the market's long-term prospects remain intact and highlighted the limited element of populism in the Budget, with allocations for welfare schemes largely unchanged.
Alok Agarwal, Alchemy Capital Management
Alok Agarwal, Head - Quant & Fund Manager at Alchemy Capital Management, acknowledged that the hike in capital gains tax rates caused immediate market jitters. He attributed this to the unexpected policy shift despite good tax revenue momentum. Agarwal warned that this could lead to increased market volatility in the short term. However, he advised investors to focus on the fundamental strengths of their portfolios, suggesting that such market fluctuations might offer opportunities to add strong stocks to their portfolios.
Strategic Advice for Investors
With the Budget announcements behind, market experts are advising a cautious approach in the near term. The focus is expected to shift to quarterly earnings and global cues. Here are some strategic insights from market experts:
Ajit Mishra, Religare Broking
Ajit Mishra, SVP-Research at Religare Broking, recommends maintaining a cautious stance amidst the volatility. He emphasized the importance of Nifty sustaining above the 24,200 level to maintain a positive outlook, warning that failing to do so could intensify profit-taking. Mishra suggests adopting a hedged approach, favoring defensive sectors such as FMCG, pharma, and IT for long trades, while advising against overbought themes like defence, railways, and select PSUs.
Shrikant Chouhan, Kotak Securities
Shrikant Chouhan, Head of Equity Research at Kotak Securities, highlighted the market's sharp intraday selling, which led the index below the 20-day Simple Moving Average (SMA). However, he noted that the market found support near 24,100/79,225 and bounced back. Chouhan identified the 20-day SMA (24,315/79,800) as the trend decider for day traders. He predicted that as long as the index trades above this level, the pullback formation would likely continue, with potential movement towards 24,600/80,800 levels. On surpassing 24,650/81,000, the market could move towards 24,850-25,000/81,600-82,000 levels.
Conclusion
The Indian stock market's ability to recover from the steep losses earlier in the session demonstrates its resilience amidst challenging conditions. The announcement of hikes in capital gains taxes undoubtedly caused immediate concern, reflected in the sharp declines in the Sensex and Nifty 50. However, the subsequent recovery indicates investor confidence in the market's long-term fundamentals.
While the mid and smallcap indices underperformed, the overall market sentiment stabilized by the close of the trading session. Experts like Pankaj Pandey and Alok Agarwal have highlighted the structural positives of the Budget and advised investors to remain focused on their portfolio strengths despite short-term volatility.
Moving forward, investors are advised to adopt a cautious and selective approach, particularly focusing on large-cap stocks and defensive sectors. The market's ability to sustain above critical support levels will be crucial in maintaining a positive outlook. As the focus shifts to quarterly earnings and global economic cues, staying informed and strategic will be key to navigating the market in the coming months.
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