Markets post budget to remain range bound

MUMBAI: Markets were super volatile on expected lines last week. Wednesday saw the Union Budget 2023-24 being presented and the Adani pack kept markets guessing throughout the week. Cues from Dow did not help either as markets in the US were more or less flat with a negative bias.

At the end of the volatile week, we did see sharp gains on expected lines with our markets gaining on every day of the week, with the best reserved for Friday. BSESENSEX gained 1,510.98 points or 2.55 per cent to close at 60,841.88 points while NIFTY gained 249.70 points or 1.42 per cent to close at 17,854.05 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.24 per cent, 0.41 per cent and 0.52 per cent respectively. BSEMIDCAP was up 0.45 per cent while BSESMALLCAP was up 0.86 per cent.

The Indian Rupee lost 31 paisa or 0.3 per cent to close at Rs 81.83 to the US Dollar. The US FED raised interest rates by 25 basis points to a band of 4.50-4.75 per cent. Indications post the announcement say that while the rate hike is not finished as yet, the pace which has slowed down is likely to remain at lower or similar levels. A couple of rate hikes going further seem on the cards.

Employment data during the week were great from the country's perspective, but bad from inflation and slowing down of rate hikes perspective. Dow Jones gained on two of the five trading sessions, losing on the remaining three. Dow Jones lost 52.07 points or 0.15 per cent to close at 33,926.01 points.

The Union Budget was presented on Wednesday and markets saw a huge swing on that day. The intraday high and low on BSESENSEX was 60,773 and 58,816, a difference of 1,957 points. The net change at the end of the day was a positive 159 points. Similarly, on NSE the intraday high and low was 17,972 and 17,353 points, a difference of 619 points. The net change at the end of the day was a negative 46 points.

While the budget could be said to be well thought out, pragmatic and certainly one which had growth written all over it. Despite the fact that next year the country sees general elections being held, it stayed away from populism and chose to reduce the fiscal deficit as a percentage of GDP compared to the -previous year.

There is one piece of confusion which hit shares of INVITS AND REITS quite badly. Some confusion has crept in where when a loan taken by a subsidiary or a step-down subsidiary is returned to the parent, the repayment would be taxed. A loan taken is normally to be repaid and is in the nature of a business transaction.

The only difference is the rate of interest. The interest paid is taxed in the hands of the recipient. Why this new clause is not quite clear. One could be sure that the clarification due would come as non-repayment could not be the intention.

The Adani Enterprises Limited FPO was fully subscribed without any change in issue price whatsoever. Family offices of leading HNI's helped in subscribing the issue, with the HNI portion subscribed over 3.32 times and the overall issue 1.12 times.

The management of the company post the satisfactory closure of the FPO, chose to withdraw the same and unblocked the money that was paid towards subscription. The withdrawal of the issue post successful completion was a bold step by the management simply because it salvaged huge money for investors from a share which had become less than half in value during the time.

RBI, the regulator has assured that the banking system is fully compliant and exposures to the Adani group are within norms. Similar assurances have been also made by SBI and LIC who are lenders to the Adani group. Market regulator SEBI has also assured that all is well without naming the group.

The finance minister has stated that there would be no impact of the FPO being cancelled on the country or its image. She also stressed that regulators will do their job and that they are independent of the government.

All these measures will help in instilling confidence in the market and it could be said that the group shares would stabilise in the coming week particularly the recently acquired cement companies and AEL the company which had launched its FPO. There would be volatility but we would see the shares finding stability.

Markets recovered more than the losses they had suffered in the previous week. However, the broad range that it has been trading in remains intact. For there to be a sharp up move it needs to break out of previous resistances made and move up. Crucial levels for the markets are 61,343 on BSESENSEX and 18,265 points on NIFTY being the high points that need to be crossed and then sustained.

The major support on the lower side would be at 17,000-17,200 on NIFTY. These would correspond to 57,250-57,850 on BSESENSEX. These levels have moved down as on Budget Day the intraday lows made were 58,816 and 17,353 points. While these levels would act as the first level of support, the final levels would be the levels mentioned earlier.

The strategy for the week ahead would be to allow and expect volatility to reduce or subside as the mega event of the budget is over. While there were not too many expectations, the biggest positive fact still remains that the election year budget was not populist.

With the FED hike also out of the way, US markets are expected to gain some ground in the coming week. Expect some up move with profit taking as the resistance zone as mentioned. Use the band to generate profits.