Adani stocks upset market’s budget cheer

Both Sensex and Nifty gapped up at opening and went on to hit intraday highs of around 2% each, before turned their course on heavy selling in Adani shares. Buying in the last half hour of trade helped the indices pare losses before the Nifty closed down a fourth of a percentage point at 17616.3 and the Sensex closed up by as much at 59708.08.

The reason for the divergent closing between Nifty and Sensex is because both Adani Enterprises and Adani Ports are part of the Nifty and not the Sensex.

“I’d give the Budget an eight out of 10,” said Nirmal Jain, founder and chairman of IIFL group. “The budgeted government capex of ₹10 trillion, which will have a multiplier effect on growth and jobs and following the glide path on fiscal consolidation, toward the sub-4.5% fiscal deficit target by FY26, are positives. But, a sharp fall in certain index constituents soured the sentiment in the second half,” he said.

The fiscal deficit has been pegged at 5.9% in FY24 from 6.4% estimated in FY23.

Key broker associations such as ANMI had requested, among others, for exemption of short-term capital gains tax up to ₹1 lakh as the tax arises after securities transaction tax is already paid by an investor. But the budget didn’t offer any relief.

Given that there were no negative surprises, in addition to the fiscal glide path being maintained, markets raised a toast post the Budget presentation. But the gains melted soon after 1 pm as the Adani group stocks turned bearish for the fifth straight session. This had an impact on PSU banking counters, which witnessed profit booking.

Nilesh Shah, MD, Kotak AMC, who likened the scale of the Budget to legendary strongman “Bahubali,” said, “Growth will be supported not only from the multiplier effect of the enhanced Infrastructure investment but also supportive monetary policy. The budget could have focused more on asset monetization but that can be pursued otherwise also depending upon market conditions.” He attributed the post-Budget market reaction to “FPI outflows due to India’s premium valuations. FPIs tactical flows are going into cheaper markets from premium markets like India.”

To be sure, EMs have outperformed India over the past three months, borne out by the gross returns of MSCI EM Index being a negative 1.35% against minus 5.48% for MSCI India over a month through December-end.

Apart from Adani shares, the Nifty was partly dragged down by life insurance companies such as HDFC Life and SBI Life, thanks to maturity proceeds being taxed for policies where aggregate premia is above ₹5 lakh. The HDFC Life stock plunged 10.9% to ₹515.7 apiece while SBI Life plunged 9% to ₹1109.4 and Bajaj Finserv shed 5.5% to ₹1268.3.

“This move will remove the tax arbitrage between insurance and mutual funds and could be in favour of the latter,” said Rajesh Baheti, MD, Crosseas Capital, one of the country’s largest proprietary traders. “The budget has no negative surprises for the market but gains were erased because of the fall in Adani group frontline stocks and its cascading effect on PSU banks like heavyweight SBI.”

Ashish Kumar Chauhan, MD & CEO of NSE, said the budget would support growth and the Indian consumption story, keep us in good stead, given global headwinds in China and developed markets, and until the rest of the world eases. “Before the budget was presented, investors were worried about a rise in capital gains. No change there; has also created a positive reaction. Overall, this is a very positive budget for the markets, with something for everyone,” he said.