Budget: A little for all, but wait for a long haul

New Delhi: The week gone by was dramatic in more ways than one. Markets lost on the first four days of the week and extended losses for five consecutive days before a complete turnaround happened on Friday, which was the first day of the August futures series.

Incidentally, the Union Budget was declared on Tuesday and markets were on a losing streak before and after the announcement. Losses in the first four days of the week were covered and converted from negative to positive by much more than the losses.

The gains on Friday were 1,292 points on BSESENSEX and 429 points on NIFTY. At the end of the action-packed week, BSESENSEX ended with gains of 728.07 points or 0.90 per cent while NIFTY gained 303.45 points or 1.24 per cent to close at 24,834.35 points.

The broader markets saw BSE100, BSE200 and BSE500 gain 1.65 per cent, 1.83 per cent and 1.92 per cent respectively.

BSEMIDCAP was up 3.13 per cent while BSESMALLCAP was up 3.45 per cent. The week ended with gains in one trading session and losses in four sessions. FPIs incidentally bought on Monday and Friday and were sellers on the remaining three days.

The Indian Rupee lost seven paisa or 0.08 per cent. It closed at Rupees 83.73 to the US Dollar. Dow gained on three of the five trading sessions and lost on two. It gained 301.79 points or 0.75 per cent to close at 40,589.34 points.

One wonders whether the US markets follow India or vice-versa. However, one thing is clear there is a correlation between the two and that the same is very close. On Friday we saw a sharp rally in Indian bourses and that reversed the losses for the week and enabled markets to close in the positive. The same happened in the US as well with Dow gaining 654 points on Friday. This would be something which should be watched closely going forward.

Tuesday, the 23rd of July, saw the Union Budget being presented for the financial year 2024-2025. The Union Budget made special mention of the stock markets which have been doing very well over the last eight months or so.

In poetic justice, it had a little for everything in the market. The tax on the long-term capital gains tax was raised to 12.5 per cent. Similarly, the short-term capital gains tax was raised to 20 per cent. STT or securities transaction tax on F&O has been doubled.

Finally, the incidence of tax on buyback of shares which was earlier on the company, has now been logically shifted to the individual taxpayer and would be treated as long-term capital gains tax.

This last provision corrects the earlier illogical tax on the company. It also throws open the possibility of promoters and companies using buybacks as a way to reward shareholders and one would see many companies using this as a way of rewarding shareholders.

This would help improve the earnings of companies, increase the promoter’s shareholding, and reduce the floating stock of the company. A win-win for all concerned.

Besides the markets, the budget had a little for many different stakeholders. Farmers, employment, skilling of citizens, infrastructure, industry and salaried class were all covered.

There is relief for the bottom of the pyramid taxpayer with benefits of Rupees twenty-five thousand in tax relief and marginal benefit in the lower tax slabs as well.

Customs duty on gold and silver has been brought down to 6 per cent. This would be a big blow to the smuggling of gold which had become rampant with quite a few people smuggling small quantities as couriers which included them carrying within their body.

One broad theme which could play out as one of the most favoured sectors, post-budget, is the affordable housing sector. Companies involved in real estate dealing with affordable housing, housing finance companies providing loans and even NBFCs and banks in this segment would become the flavour of the year.

It’s a big segment and one would have to pick and choose the best from a big pool of companies. From an overall point of view, the best part of the budget was that against popular belief and perception, this was not a populist budget and this saw markets heave a sigh of relief. One did not see freebies galore being announced.

Thursday, the 25th of July, saw July futures expire. The series saw gains of 361.70 points or 1.50 per cent to end at 24,406.10 points. It was an action-packed series that saw new highs being made repeatedly, culminating with the presentation of the Union Budget.

In primary market news, we had the listing of Sanstar Limited which had issued shares at Rs 95 list on Friday, the 26th of July. The share hit a high of Rs 127.68 after debuting at Rs 106.40 on BSE. The share closed the day at Rs 115.09, a gain of Rs 20.09 or 21.15 per cent.

There is one IPO from Akums Drugs and Pharmaceuticals Limited which is opening its issue on Tuesday the 30th of July and closing on Thursday the 1st of August. The issue consists of a fresh issue of Rupees 680 crores and an offer for sale of 1,73,30,435 equity shares in a price band of Rs 646-679. Because of INDAS accounting rules, the company had to make provisions on account of put and call options which resulted in significantly lower profits than actual. Post the IPO, these provisions would be reversed which would then reflect the true performance of the company.

The company is a CDMO player and is currently the 25th-ranked player globally. They have large capacities in Uttarakhand and had acquired the facilities of an earlier listed player from that area, Parabolic Drugs Limited.

While the integration is complete, they still need to ramp up these facilities along with the facilities of the company, quite significantly. This ramp-up is likely to take anywhere between 9 to 18 months before the potential is reached.

Based on the numbers of the company and the fact that the balance sheet and profit and loss for the last reported accounts of March 24 include the provisions as stated above, it makes no sense to discuss them here as the PE is negative.

Considering the prospects of the pharma industry, its nature of being a defensive sector and our markets currently grappling with high and unsustainable valuations, this issue looks decent from a medium-term investment. There could be listing pop as well. Investment with a medium-term objective is warranted for reasonable returns.

In the week ahead we will have many more companies having their roadshows and then opening their issues. Two of them have announced their dates but not the price band. These are the issues from Ceigall India Limited which would open on Thursday the 1st of August and close on Monday the 5th of August.

The issue consists of a fresh issue of Rupees 684.25 crores and an offer for sale of 141.74 lakh shares. The price band would be publicly announced on Monday morning. The company is an infrastructure company making roads.

The second issue is from Ola Electric Mobility Limited which will be opening on Friday the 2nd of August and closing on Tuesday the 6th of August. The issue consists of a fresh issue of Rupees 5,500 crores and an offer for sale of 8.49 crore shares.

The price band will be advertised on Monday the 29th of July. The company has a market share of 50 per cent in the EV scooter space and it reported revenues of Rs 5,243 crores for the year ended March 24 against Rs 2,782 crores for the previous year.

Losses for the period rose to Rs 1,584 crores against Rs 1,472 crores. The issue would be an interesting one with a lot of activity considering that the EV space is exciting and in the news. Further, this would be the first company from this space in India that is also into the manufacture of batteries and cells for the EV.

Coming to the markets in the week ahead, one would expect them to consolidate around these levels after the great start to the August futures series on Friday.

Valuations are a concern currently and the results in the quarter so far are not the best that one expected or have been seen. The growth seems to be slowing for sure and therefore future valuations are getting that much more expensive.

Secondly, there are no short to medium-term triggers or news flow for the markets which could be a rallying point. The US FED meets next week for its six weekly review meetings. Looking at the red-hot economy and data emerging from the US, it is almost unlikely that any sort of rate cut could happen now or any time soon. How US markets react to this news will be known in three trading sessions.

The strategy for the week would be to continue to book profits and take money off the table. With NIFTY making a new closing high on Friday, there could be some more juice or steam left in the rally but the risk-reward ratio is against the bulls. Book profits and look for pockets where opportunity arises.

With markets tilting towards the long side, there could be sharp corrections as and when they happen. If no stock ideas emerge, bide your time. It would be better than being fully invested at such elevated levels.

Trade cautiously.