26 Jul 2024 — Market recovers yet again, stance changed to Bullish, Poor Budget + Nifty, BankNifty…
Nifty Stance Bullish ⬆️
Nifty is up 324pts ~ 1.32% this week. Markets fell on the 19th and then the weakness continued till Thursday. What happened today, 26th surprised everyone as Nifty recovered 1.76% ~ 428pts to hit a new ATH of 24861.
We had a poor budget, wherein the short term capital gains (STCG), long term capital gains (LTCG) and the Security Transaction Tax (STT) were increased. If we were any other country like the US, the markets would have fallen 10 to 15% as increasing the taxes usually does not bode well with the investing community. Still, Nifty being Nifty and India being India — we went up to hit an all time new highs.
- STCG goes up from 15% to 20% ie an increase of 33%
- LTCG goes up from 10% to 12.5% ie an increase of 25%
- STT on Futures Trading goes up from 0.01% to 0.02% ie an increase of 100%
- STT on Options Trading goes up from 0.0625% to 0.1% ie an increase of 100% ie an increase of 60%
The intraday rally today was a whopping 651 pts ~ 2.69%. We had a neutral call last week, this has been negated and now the stance looks bullish.
We are pretty close to hitting the historical mark of 25000 points. The only thing the bears are taking home is pain. The unstoppable force of Nifty is posing an existential threat to the bears, I am one of them 😢.
BankNifty Stance Neutral ➡️
BankNifty dropped 873pts ~ 1.67% this week, compare this with Nifty which went up 1.32%. This means we have a divergence and the main reason for that is the catch-up from other sectors like NiftyIT and Nifty FMCG. BN has the highest sectoral weight on Nifty, so you can imagine how much more the other sectors should have gone up to negate the fall.
BN’s fall reflects the budget’s impact with more accuracy. We need to watch out whether BN can stay subdued like this when N50 has already hit a new ATH.
The new tax regime gives extremely low importance to savings, it encourages consumption pretty aggressively. This is not really good for the banks as the deposit rates may fall pretty badly.
When consumption goes up, it will create an explosion in the factors market — more production, more job opportunities etc. But if uncontrolled, will create hyper inflation as well.
Indian Govt. used to encourage savings and this was the only way middle class people could step out of mediocrity to richness. This also made the financial services sector the biggest and the largest sector in India. When you compare this with the developed countries, wherein the technology & retail sector dominates, one thing is sure — banks may lose its sheen gradually.
I am quite sure the economists and the finance ministry would have considered this point during their mathematical modeling. Since these are long term developments, it may need policy continuity to follow this new path.
Our stance on BankNifty should ideally be bearish, but the markets showed resilience at the 50500 level. If we break these levels over the next week — we will definitely go short. Till then staying neutral would give us better trading opportunities (non directional).
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