Nifty and Sensex Fall in Pre-Budget Consolidation; What Does the Future Hold for the Market?

Indian equity markets took a dip on Tuesday, July 23rd, 2024, in the last trading session before the Union Budget. This decline wrapped up a phase of market consolidation, with investors feeling cautious ahead of the important fiscal announcement.

The benchmark Nifty 50 index ended the day down 0.75%. The broader Sensex index followed a similar trend, finishing 0.68%.

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At the close, the Sensex was down 0.13% at 80,502, while the Nifty slipped 0.1% to 24,509. The market saw 1,969 shares advance, 1,567 decline, and 111 remain unchanged.

However, the midcap and smallcap indices increased by 1.3% and 1%, respectively, and have surged 15% and 12% over time, outperforming the Nifty’s 9.7% gain.

Market Sector Performance: Realty Leads Declines

Most sectors saw losses, with the realty sector dropping more than 2%. This decline may be due to worries about possible changes in real estate tax policies in the upcoming budget, leading investors to be cautious.

Financials, Metals, and FMCG Experience Declines

Other sectors, including financials, metals, and FMCG (Fast Moving Consumer Goods), also declined. The financial sector slipped by around 1.5%, likely due to profit-booking after a recent rally. Metal stocks fell by over 1%, possibly due to a correction in global commodity prices. The FMCG sector, usually a safe haven during market volatility, saw a modest decline of around 0.5%, indicating broader market weakness affecting even stable sectors.

IT and Healthcare Sectors Show Resilience

In contrast, a few sectors did well. The IT sector closed slightly higher due to strong buying interest from positive earnings and growth in digital technology. The healthcare sector also saw some buying, ending the day unchanged.

Analysts’ View: Pre-Budget Uncertainty and Profit-Taking

Analysts attribute the pre-budget dip to a mix of factors. The upcoming budget naturally adds uncertainty to the market. Investors are likely cautious, waiting for clarity on the government’s fiscal plans and potential policy changes. Additionally, profit-booking after recent gains, especially in certain sectors, may be contributing to the market correction.

Key factors influencing the market:

• Pre-Budget Jitters: The upcoming budget announcement is a major event that can significantly impact the markets. Investors are likely adopting a wait-and-see approach, awaiting clarity on the government’s fiscal policies.
• Profit Booking: After a recent period of gains, some investors might be choosing to lock in profits, particularly in sectors that have witnessed strong rallies.
• Sectoral Performance: The decline was broad-based, with realty being the worst performer due to potential policy concerns in the budget. IT and healthcare sectors offered some respite, with the former witnessing marginal gains and the latter remaining flat.

Pre-Budget Uncertainty Countered by Bullish Trends and Possible Rate Cut

Indian markets are caught between pre-budget cautiousness and bullish technical indicators ahead of Finance Minister Nirmala Sitharaman’s first Union Budget for the Modi 3.0 government on July 23rd, 2024.

Technical Analysis Hints at Bullishness

Nifty 50 has reached a new high of 24,800, with technical charts suggesting a potential rise to 27,000, indicating strong momentum.

Balancing Optimism with Caution

Despite the optimism, pre-budget jitters persist. Investors are cautious, awaiting the budget’s impact. Additionally, a potential US Federal Reserve interest rate cut could attract more foreign investments to Indian markets. 

Looking Ahead: Market Focus on Union Budget

Market participants will closely watch the Union Budget presentation, which will outline the government’s spending and revenue plans. Investors will scrutinize the specific measures announced, particularly those related to taxation, infrastructure, and social welfare. The budget’s impact on various sectors will likely influence the market’s direction in the near future.

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