Stock Market Analysis, 1st July To 5th July

With the NDA announcing the Union Budget on Friday (5^th July), markets were pensive, not making much of a move over the week, until Friday. Upon the announcement of the Budget, the Nifty tanked 135 points resulting in a 1.14 % fall from the day’s highest of 11982 to 11811.

This year’s Union Budget introduced some policy measures affecting various industries, primarily with regards to Foreign Direct Investment. Higher FDI limits were introduced for the Aviation, Insurance intermediaries & Select Media Industries, hence prompting a rise in the share price for those industries.

One of the primary focuses of the Government with this budget was to promote large scale industrial building projects, promising to spend Rs 100 Lakh Crore on this sector over the next 5 years as well as the formation of a committee to be in charge of financing these proceedings. It would be advisable to keep an eye on heavy industries, particularly those pertaining to Large Scale Rural Projects as there is expected to be an influx of demand for them from the Government.

Prospects may look favourable for Fund shareholders as the Government plans on Reducing Capital Gains Tax on Funds of Funds in order to increase participation from retail investors so as to meet its new Divestment targets. Now may be a good time to start looking at and investing in FoFs.

In news of the Bonds market, the Government is in talks with the RBI and Sebi with the idea of introducing collateral as AAA bonds with the purpose of providing flexibility to investors for financing their Investments & to increase overall Investment in the Economy to help GDP growth.

However, despite these supposedly favourable policies, the stock market still sunk upon Finance Minister Sitharaman’s announcement of the budget. This can be attributed to 2 main factors.

1)A large reason for the Market’s bearish response to the announcement of the Union Budget could be accredited to the new policy on public shareholding, raising the minimum from 25 % to 35 % thus causing concerns in the market with regards to liquidity.

2)Another reason would be Sitharaman’s proposal to extend the buyback tax of listed companies to 20%, reducing tax exempted income of shareholders from buy back shares. This move is sure to affect the buy back of many listed companies.

That concludes last week on the market, eyes are now set as to how investors will respond to the budget after having a clearer idea over the weekend