NIFTY TESTS MAJOR SUPPORTS ON BUDGET DAY PLUNGE

NIFTY TESTS MAJOR SUPPORTS ON BUDGET DAY PLUNGE

AT HOME

Benchmark indices nosedived 2.5%, suffering the worst fall since 5th October 2018. Sensex settled at 39735, down 988 points while Nifty lost 300 points to finish at 11661. BSE mid-cap and small-cap indices tumbled 2.2 each. Except 1.1% and 1.1% higher IT and Teck indices respectively, all the BSE sectoral indices ended in red with Realty and Capital Goods indices leading the losses down 7.8% and 4.8% respectively.

FIIs net sold stocks, index futures and stock futures worth Rs 1200 cr, 1410 cr and 87 cr respectively. DIIs were net buyers to the tune of Rs 37 cr.

For the week, Sensex and Nifty plunged 4.8, suffering the worst weekly hit since the week ended 5th October2018.

 FM Nirmala Sitharaman’s second budget, presented on Saturday, estimated FY21 nominal GDP growth of 10% and pegged fiscal deficits for FY20 and FY21 at 3.8% and 3.5% respectively, which were as per market expectation. However, there is credibility issue with estimate of 14.2% growth in tax collection for FY20 RE.

FM announced lowering of personal income-tax rate for those earning between 5-15 lakh. However, these reduced rates will come at the cost of exemptions and deductions. These lower rate regime will be optional.

The other big announcement was abolition of DDT (Dividend Distribution Tax). However, instead of companies, the individual receiving the dividend will have to pay tax on the same as per applicable slab. The companies to watch out here are PSUs like Coal India, BPCL, HPCL, IOC, Petronet, NHPC; MNCs like HUL, Castrol, Cummins, Colgate, Nestle and other companies like TCS, Page Ind, Hero Motocorp, Infosys, UPL and ITC which are high dividend payers.

The budget has expected an ambitious divestment target of Rs 2.1 lk cr. Apart from LIC IPO announced in the budget, FM expects proceeds from divestment of BPCL, Concor, Air India etc. to help achieve this figure.

Real Estate stocks plunged sharply as there was no big-bang announcement to boost housing demand, measures to address liquidity concerns or increase in deduction limits. Instead the optional personal income tax structure reduces incentive for buying a house for tax concession. On the positive side, additional interest deduction of Rs 1.5 lk for affordable housing was extended by one more year.

Insurance companies too plunged as new personal tax regime is a disincentive.

Fertiliser companies fell as allocation for the sector was cut by 11%.

Announcement on Infra space fell short of expectation. While key positives included 100% exemption for sovereign wealth funds who invests in infra space and concessional rate of 15% for new companies in power generation, key disappointments were lower than expected allocation, no major announcement related to DISCOM reforms and no announcement to address lack of funding.

Also, there was muted increase in allocation to key rural schemes.

Key disappointment from stock market point of view was no change in LTCG and STT regime.

In terms of specific sectors which got special focus included electronics manufacturing (positive for Dixon, Amber, Subros etc), Fisheries (positive for Avanti Feeds, Apex Frozen Foods and Waterbase), air conditioned freight cars and viability gap funding for warehousing (positive for Concor), Solar pumps (positive for Shakti Pumps), plan to provide piped water across Indian households by 2024 (Jain Irrigation Systems Ltd., KSB Ltd., Kirloskar Brothers Ltd., JK Agri Genetics Ltd., PI Industries etc), allow the private sector to build data center parks  (positive for IT companies), expansion of national gas grid to 27,000 kilometers from 16,200 kilometers (positive for IGL, MGL and Gujarat Gas and pipe companies like Welspun Corp., Maharashtra Seamless Ltd., Ratnamani Metals, Jindal Saw, and Man Industries).

OUTLOOK

Today morning, Chinese market has opened after Lunar New Year holidays with cuts of nearly 9%. SGX Nifty is trading around 11660, suggesting a flat start when compared to Saturday’s close of Nifty futures.

In Saturday's report we had mentioned that 20-week moving average, placed around 11890, continued to be important immediate support, below which, 11832, the low made in December 2019, would be the next support. We had also said that in the event of 11832 also giving way, be prepared for 11650, where 34-week moving average is placed.

Nifty broke 11890 and 11832 supports and collapsed all the way to 11633 before closing at 11661, testing 200-DMA as well as 34-week moving average supports placed around 11650.

11633, the low made on Saturday, is the important immediate support, upon breach of which, 11550, the 50% retracement level of the entire 10670-12430 upmove would be the next support to eye. In the event of 11550 giving way, 11400, where 20 month moving average is placed, would be the next crucial support.

On the way up, 12017, the top made on the budget day, would work as immediate hurdle.