Daily Big Picture – LTCG Tax Irks Investors; Nifty Midcap Breaks 50-DMA

Today’s Action:

Key benchmarks post small losses; midcap and smallcap stocks slide again.

Daily Market Review:

Volatility loomed over the Indian market during the entire session, as India’s Finance Minister Arun Jaitley went through his budget speech.

With the announcement of the return of long-term capital gains tax rate, key indices dived for a brief period before recovering to close with small losses. The Nifty and the Sensex settled with losses of 0.1% and 0.16%, respectively.

There was no respite in the broader market, as both the Nifty Midcap and Smallcap indices slipped lower for the sixth straight session. The Nifty Midcap and the Smallcap indices declined 0.61% and 0.38%, respectively.

On the sector front, barring few, all the sector indices witnessed selling pressure amid weakness in the general market. The Nifty FMCG, Auto and Metal indices moved higher with gains of 0.83%, 0.7% and 0.14%, respectively.

The market breadth remained in favour of losers once again. On NSE, 694 shares advanced against a decline in 849 shares. A total of 28 shares remain unchanged.

On the contrary, the MarketSmith India 47 index, which is a list of top 47 stocks in chart and fundamental characteristics, gained 0.46% today, thus outperforming the major indices.

Coming to today’s main event, Arun Jaitley’s final budget before the 2019 general elections focused more towards the betterment of farmers and India’s poor. Increase in minimum selling price and introduction of a National Health Protection Scheme for poor families was a testimony to this.

Salaried class had nothing much to cheer about as there was no change in personal income tax slabs. On the other hand, micro, small and medium enterprises (MSMEs) received a boost with a cut in corporate tax rate to 25% (only for companies with turnover up to Rs 250 crores).

The government raised its fiscal deficit targets to 3.5% in FY 2018 and 3.3% in FY 2019 amid shortfall in revenues due to GST. Also, equity investors found themselves at the receiving end with the return of long-term capital gains tax rate. Overall, Finance Minister’s focus on maintaining fiscal discipline did not leave much room for everyone to benefit out of the budget except the farmers and MSMEs.

Talking about market action, key indices managed to outperform the broader indices once again. Both the Sensex and Nifty are around 1.5% below their all-time highs, while the Nifty Midcap and Smallcap indices have corrected 5.4% and 9% from their all-time highs. The distribution day count remains low at two for key indices, however, for broader indices the distribution count has increased to four after today’s session. The Nifty Midcap and Smallcap indices have breached their 50-DMA levels also.

Considering that the key indices are still close to their all-time highs and the distribution count is not alarming, the Indian market remains in a Confirmed Uptrend. However, investors should not ignore the weakness in broader markets.

Current Outlook:

– Market environment conducive for new purchases, but remain selective.

– Focus on fundamentally strong stocks breaking out of strong technical patterns.

– Stay disciplined and exercise sound buy and sell rules.

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