Union Budget Takeaways, Impact on Stock Markets, and Top Cues in Focus Today

Mon, 3 Feb Pre-Open

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India share markets witnessed huge selling pressure on Saturday as the Union Budget announcements disappointed market participants.

At the closing bell on Saturday, the BSE Sensex stood lower by 987 points (down 2.4%) and the NSE Nifty stood down by 318 points (down 2.7%).

The BSE Mid Cap index ended down 2.21%, while the BSE Small Cap index ended down by 2.20%.

Stocks in the banking sector, realty sector and capital goods sector witnessed huge selling pressure. Except the IT sector, all sectoral indices were trading in the red.

Key Highlights from the Union Budget

Finance Minister Nirmala Sitharaman's Budget announcements failed to lift share market sentiment.

We have shared key takeaways from the Budget 2020-2021 in one of our stock market updates. You can read them here.

Apart from the takeaways, some factors from the budget announcement that weighed on Indian share markets on Saturday were as follows:

The budget did not have specific sops for any sector. There we no mention in this regard for any sector, be it auto or real estate. Market participants were expecting sops to create demand in the economy and lift it out of the current slowdown.

Other factor that disappointed investors was that the high divestment target. Given that even this year's divestment proceeds will be much less than the budget target of Rs 1.05 lakh crore, the Rs 2.10 lakh crore target for FY21 is a bit too high, even if one includes the LIC stake sale.

The Finance Minister also announced the abolition of dividend distribution tax (DDT), which will lead to a Rs 250 billion in revenue foregone. However, dividends will now be taxed in the hands of recipients. This came as a negative development for domestic investors.

Apart from the above, the market was also expecting the Finance Minister to make some tweaks to long-term capital gains tax (LTCG) but there was no such announcement in the budget. Market participants were expecting the government to either abolish the tax for equities or extend the tenure to two years from one at present.

The Union Budget for the year 2020-21 may not be hailed as hugely reformist. But fair to say that the finance minister hasn't harmed her and the Government's reputation either.

Coming to the all-important question...

Now that the budget is out, should there be a marked change in the way we should go about investing?

As per Richa Agrawal, rather than changing your portfolio on the basis of budget announcement, one should be a passive long-term investor.

Because as per her, fundamentally strong stocks will not only survive but thrive in the long term, irrespective of any erratic market movements.

You can make good gains with a careful selection of stocks and long-term horizon, irrespective of the index levels.

She has narrowed down on one such smallcap stock.

You can access the report here (requires subscription). And if you're not an Hidden Treasure subscriber, here's where you sign up.

You can also watch Richa talk about the stock on Tuesday, 11 February.

We've arranged a special online summit for her. It's completely free and you can watch it from the comfort of your home. Register for it here.

Meanwhile, Rahul, Tanushree, Richa, Apurva, and Ankit will be sending their various editorial pieces today with their views on the budget. So, do watch out for them.

Also, speaking of the Indian share markets, note that Indian indices have witnessed a starkly polarised situation since 2018, after the uninterrupted bull rally of 2017 entered a period of correction.

While the Sensex recovered from the correction and went on to hitting new life-time highs, the broader markets - predominantly the small and midcap stocks -haven't recovered much.

Ankit Shah, the editor of daily premium newsletter Equitymaster Insider (requires subscription), has been talking about this trend since a long time. But now, he has even more elaborate data to show you how deep this trend has been.

He pulled out data on 1,638 companies listed on the NSE.

And he shares his observations in a recent edition of The 5 Minute WrapUp...

• Between 29 December 2017 and 30 December 2019, just 246 companies have witnessed gains. Together, these 246 companies added Rs 29.8 trillion worth of market capitalisation.
  
  In other words, 1,392 companies are below the levels they traded at the end of December 2017. Together, these 1,392 companies lost Rs 28.6 trillion worth of market capitalisation.
  
  So, you see the money has literally shifted from one place to another.

Even among the 246 companies that witnessed gains, the major chunk was captured by just a small list of companies.

This can be seen from the chart below...

A Very Small Group of Stocks Captured All the Gains

As you can see, the top 5 companies captured 41% of all the gains in market capitalisation over the last two years. In fact, the top 30 stocks captured more than 80% of the gains.

In short, money has been rushing to safety, into large, liquid, bluechips stocks.

This brings the question: Where can you look for such bluechip stocks?

You can consider the bluechip recommendations made by our Safe Stocks guru, Tanushree Banerjee. She has picked her top 7 stocks for 2020.

India's Forex Reserves at Lifetime High

India's foreign exchange reserves reached a lifetime high of US$466.7 billion after a massive US$4.5-billion spike in the week to January 24, according to the Reserve Bank of India (RBI) data.

During the last week, the increase in reserves was mainly due to a rise in foreign currency assets, a major component of the overall reserves, which rose by US$4.5 billion to US$432.9 billion.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units such as the euro, pound and yen held in the foreign exchange reserves.

In the reporting week, gold reserves increased by US$153 million to US$28.7 billion.

The country's reserve position with the International Monetary Fund declined by US$85 million to US$3.6 billion, the data showed.

How this numbers pan out in the coming weeks remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

HUL Q3FY20 Result

From the FMCG sector, FMCG major Hindustan Unilever (HUL) reported 12% rise in consolidated net profit at Rs 16.3 billion for December quarter 2019-20, helped by higher margins and volume growth.

The company had posted a profit of Rs 14.4 billion in October-December period of the previous fiscal.

Net sales during the quarter under review stood at Rs 99.5 billion, up 3.9% from Rs 95.8 billion in the year-ago period. Total expenses were at Rs 78.5 billion.

The company's revenue from home care segment was at Rs 34.6 billion, up 9.8% from Rs 31.5 billion in the year-ago period.

The company in a regulatory filing said that "home care continued its trajectory of good performance with double digit topline growth. In Fabric Wash, our focus on core and premiumisation continues to yield strong results."

In a separate filing, HUL said its board in a meeting held on Friday approved the appointment of Ashish Sharad Gupta as Independent Director with effect from January 31, 2020.

The company also announced appointment of Prabha Narasimhan as Executive Director of its Home Care segment and as its Management Committee as part of its top-level reshuffle within the organisation.

To know more, you can read HUL's Q3FY20 result analysis on our website.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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