Market Outlook - August 2024

Market Update

July 2024 was an eventful and volatile month for Indian equities. We started the month amidst uncertainty on the first budget of the third term of Modi government. There were concerns that the budget could sway more towards populism given the lower mandate, which led to some profit booking ahead of the budget speech. Though there was a hike in capital gains tax that caused initial jitters, continuity in fiscal prudence path and a pro-growth stance soothed the investors nerves. Markets finally ended the month on a new record high, rising 4% in the month of July. Broader markets outperformed with mid-cap and small-cap indices gaining 5.8% and 4.5%, respectively. Foreign Portfolio Investors (FPIs) bought US$3.7 billion (until Jul 30) of Indian equities in the secondary market, whereas Domestic Institutional Investors (DIIs) bought US$2.8 billion (until July 31).

Keeping with the concept of “Viksit Bharat,” the finance minister Nirmala Sitharaman unveiled a growth-oriented budget that prioritized continuity, ease of doing business, streamlining tax laws, developing infrastructure, and making India a hub for global manufacturing. Despite the burden of coalition politics, the Government, from a policy perspective, communicated through this Budget that it would remain committed to its key areas of focus and exercise fiscal restraint. The budget continues with the agenda of GDP growth, infrastructure spending, thrust on manufacturing, agriculture efficiency improvement, and enhancing employment. The Budget struck a sensible balance between capital spending, fiscal restraint, and welfare. Individual tax rates were slightly adjusted and capital gains taxes were streamlined for all asset classes. Slight increase in capital gains tax on listed equities is a mild negative but at the same time capital gains tax on unlisted equities, real estate, and other asset classes should balance a diversified investors tax burden.