Volatility to increase, say analysts

Domestic markets are likely to open flat, eyeing Budget pronouncements. Gift Nifty at 24550 indicates a flat opening. After the Economic Survey is presented, expectations on GDP are moderated. 

Vinod Nair, Head of Research at Geojit Financial Services, said The conservative economic growth forecast for FY25, presented in the economic survey, has introduced some spikes in volatility ahead of the budget. Further, the below-estimated Q1 results from certain index heavyweights like RIL added to apprehensions of a slowdown in earnings growth in FY25. “Although the budget is anticipated to be favourable, investors will closely monitor whether it continues to tickle traction, given high valuations and the risk of a downgrade in earnings,” he further said.

According to Siddhartha Khemka, Head - of Retail Research, Motilal Oswal Financial Services Ltd, rising US-China tension, US President Joe Biden’s withdrawal from the presidential race and mixed set domestic earnings so far, especially from heavyweights have dented investor sentiments. Moreover, the market is cautious ahead of Union Budget, especially given the conservative growth forecast in the economic survey released during the day. “Though the Budget is largely expected to be growth-oriented, with the announcement of some measures aimed at addressing rural economy; this is largely factored in by the market. Investors will look out for signs of further traction. We could see some volatility tomorrow along with sector and stock specific actions,” he added.

Shrey Jain, Founder and CEO of SAS Online - India’s Deep Discount Broker, said: Government’s estimate of economic growth at 6.5-7 per cent in FY2025 is in line with the growth estimates of 7 per cent put forward by the International Monetary Fund, and tad below 7.2 per cent estimated by The Reserve Bank of India. “Though this indicates that the government does not anticipate further acceleration of growth in the Indian economy in near future, it does not anticipate a material slowdown either,” he further said,

In the two years since FY21, gross fixed capital formation by the private sector has surpassed that by the government, which indicates that the private sector has been investing. The government may encourage investments by the private sector going forward. 

As the economic survey points out, “Employment generation is the real bottom line for the private sector,” expect more incentives to labour-intensive businesses in manufacturing, especially textiles, housing and blue-economy, in Union Budget 2024 as well as in the policy announcements in future.

Downward bias seen

Analysts expect the market to fall, given the stiff valuation, especially in the mid-cap space.

Biju Samuel of Elara Securities  said: The Midcap alpha is at a multi-decadal resistance as observed from the relative trends of the Midcap100 to the Nifty50. This secular resistance is drawn by connecting the August 2005 top to the January 2018 top, two of the biggest alpha culminations. Easy money in mid-caps could be beginning to get challenged. “Within a runaway market boom, the corrections are usually in the form of flash crashes. It is sharp but short-lived, lasting sometimes intraday or 1-1.5 days. It can see indiscriminate selling with sentiments quickly driven to ‘sell now, think later’,” he said.

Mandar Bhojane, Research Analyst, Choice Broking, said: The India VIX, a gauge of market volatility, rose by 4.13 per cent intraday to settle at 15.4375, indicating increased market uncertainty. In terms of Open Interest (OI) data, the highest OI on the call side was observed at the 24,800 and 25,000 strike prices, while on the put side, it was at the 24,000 strike price, he said.

Meanwhile, Asian stocks are up moderately in early deals on Tuesday.

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