Indian Stock Market Reacts to Budget Announcement with Mixed Outcomes

New Delhi | Updated: July 23, 2024 — The Indian stock markets observed significant fluctuations today as Union Finance Minister Nirmala Sitharaman presented the Union Budget. The NSE Nifty 50 and S&P BSE Sensex both fell by about 1%, trading at 24,225 and 80,024, respectively.

Driving this decline were proposals to increase taxes on capital gains and trading derivatives, leading to a noticeable drop in investor sentiment. Additionally, the Indian rupee hit a record low against the US dollar, plunging to 83.69, adding to the discomfort in the market.

However, it wasn’t all bad news in the market today. Consumer stocks stood out as exceptions to the downturn, gaining 2% after the government announced an allocation of 1.52 trillion rupees for the agriculture and allied sectors. This announcement led agriculture-related stocks like Kaveri Seeds, Mangalam Seed, and Dhanuka Agritech to shine, rising between 4.4% and 10.5%.

In the fisheries segment, stocks for companies such as Avanti Feed and Coastal Corp also recorded gains, rising by 4.3% and 2.3%, respectively. This uplift came after the government pledged financial support for the sector along with a reduction in the basic customs duty on shrimp to 5%.

On the flip side, capital goods stocks such as Larsen & Toubro, ABB India, Thermax, and Siemens faced a considerable hit, losing between 1.5% and 5%. Investors displayed disappointment as the budget did not reveal an increased spending plan for infrastructure, with L&T emerging as one of the top Nifty 50 losers.

At a glance, the seafood industry showed resilience as Finance Minister Nirmala Sitharaman announced financial support for shrimp farming and marketing. Zeal Aqua’s shares surged by 9.27%, while Kings Infra Ventures and Coastal Corp followed suit with increases of 8.15% and 7.55%, respectively. Even Apex Frozen Foods and Waterbase saw their stocks climb by 7.51% and 5.51% on the BSE.

Conversely, the telecommunications sector suffered losses due to the proposed increase in the basic customs duty on specified telecom equipment from 10% to 15%. Share prices of significant players like HFCL saw a tumble of 4.60% to Rs 112.10, with Vodafone Idea dropping 4.15% to Rs 15.23. Other companies in this sector, including Tejas Networks and ITI, reported declines of 2.69% and 2.58%, respectively.

The effects of the budget proposals also extended to commodity markets, with gold prices plummeting after a hike in the securities transaction tax on futures and options trades. On the Multi Commodity Exchange, gold contracts for August delivery fell by 5%, dropping by Rs 3,702 to settle at Rs 69,016 per 10 grams.

During the volatile trading session, the BSE’s 30-share index Sensex briefly fell over 1,200 points, dipping to a low of 79,224.41 during intra-day trades. Similarly, the NSE Nifty 50 recoiled to see a day’s low of 24,074.2 before managing a slight recovery.

This turmoil stems from Financial Minister Nirmala Sitharaman’s announcement to raise the STT on futures and options of securities to 0.02% and 0.1%, respectively. This decision, perceived as a direct tax levied on the purchase and sale of securities listed on stock exchanges, was aimed at regulating the surge in trading volumes, a concern for the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India.

As the budget continued to unfold, certain sectors appeared to react positively while others basked in adversity. The announcement of financial support for the agricultural sector resonated well with market participants, as stocks related to agriculture showcased robust performances.

Investors cautiously monitored the developments amid fluctuating sentiments in the markets. There was a clear divide in investor behavior, with those inclined towards sectors benefiting from government support, such as agriculture and fisheries, taking a bullish stance.

In other financial news, the benchmark 10-year bond witnessed a slight uptick, quoted at Rs 100.88, with yields up by 1 basis point at 6.9716%, reflecting investor sentiment amid budgetary announcements.

Meanwhile, the fluctuations in overnight swap rates also highlighted the cautious trading environment. The one-year overnight index swap rate decreased by 3 basis points to 6.68%, while the five-year swap rate fell slightly to 6.29%, indicating mixed responses from the financial landscape.

The rupee troubles echoed across the trading floors, having dropped to a record low against the dollar, inching past its previous all-time low of 83.6775, from 83.6275 before the budget announcement. This news only added to the worries surrounding the impact of the budget on the overall economic landscape and investment climate.

As the sessions progressed, analysts and market participants kept a close eye on stocks linked to sectors that previously enjoyed substantial government backing. The budget’s implications sparked debates regarding future movements of key indices on the stock markets.

An increasing focus on agricultural spending allowed markets to see some stabilization, despite overall weakened stocks influenced by the proposed tax hikes. Additionally, the fluctuations suggest a need for ongoing vigilance among investors reacting to the Union Budget and its implications for sector-specific performances.

The developments surrounding today’s budget presentation echo the complexities of navigating a market characterized by rapid policy changes and economic adjustments. With Finance Minister Nirmala Sitharaman calling for strategic fiscal measures, market interpretations will likely continue to evolve and shape trading behaviors in the coming days.