Motilal Oswal Financial Services Research Head (Institutional Equity) Gautam Duggad Says that the Reserve Bank of India (RBI) is in accordance with the market expectations. But investors will welcome monetary softening and wait for further steps on liquidity. In an email interview to Sundar Sethuraman, Duggad said that the benefit of tax incentive of Rs 1 lakh crore declared in the general budget will start to appear from the first quarter of 2025-26. Main Excerpt:
What will affect the RBI rate cut on the stock market?
The rate deduction was in line with market expectations. This step taken in the direction of monetary softening should provide relief to investors, which will now monitor additional measures to improve cash. However, the immediate path of the market will mainly take shape from the income and global economic factors of the companies.
What is your assessment about the December quarter income?
According to estimates, the income of 238 companies with our assessed increased by 5 per cent on an annual basis. Of these, 96 recorded less than expected profits, 72 earned more than expected and 70 were according to income estimate. The global commodity area was affected by the total performance. Except for metals and oil and gas, our assessed companies registered a 9 per cent increase in income. Meanwhile, 27 of these companies were seen upgraded in ratings while each of 103 was reduced to more than 3 per cent. The slight increase in income broadly occurred in the financial sector and technology, real estate, health care and capital goods sectors. In contrast, global cyclicals (especially oil and gas, metal, cement, automotive and consumer goods) drawn down the total growth. The income of Nifty for FY 26 is now Rs 1,203 per share, which shows an increase of 15 per cent. For 2026-27 it is Rs 1,374 which shows a 14 per cent increase.
Has budget announcements changed the market outlook for 2025?
The most important measure in the Union Budget of FY 26 was a tax encouragement of Rs 1 lakh crore for middle class taxpayers. For the first time in 11 years, the budget has focused on promoting consumption and savings by removing eyes from capital expenditure. The major beneficiaries of this change include FMCG, retail, discretionary expenditure area, real estate, two -wheelers, entry level vehicles and capital market investments. In view of the limited fiscal scope, the Finance Minister presented a progressive budget that assured the market.
Will tax cuts help restore the softening of income?
We hope to improve the income of consumer sector companies which will be through increased demand from encouragement and then operational benefits. The impact of this incentive should begin to appear from the first quarter of FY 26 as families adjust their budget for tax savings. Meanwhile, the impact of flat growth in the central government’s capital expenditure may take longer to appear on the earnings of industries.
Has the evaluation softened after recent reforms?
Nifty 50, midcap 100 and smallcap 100 index have come down from their highest level in September 2024, 10 per cent, 12 per cent and 13 per cent below respectively. However, the decline in the overall index has been low. But the decline in personal shares has been more clear. After the market fall, the Nifty 50 is now trading at 12 months ahead P/E ratio at 19.8 times, which is about 4 percent less than its long -term average. The Nifty Midcap is at about 30 times p/e which shows the premium to 50 per cent of the Nifty-50. The Nifty Smallcap is trading at a PE of about 22 times PE, which is the Nifty-50 to 13 per cent premium.
What is your view on the investment of foreign portfolio investors (FPI)?
The recent selling in domestic equity began in October 2024. Since then the FPI has carried out a net withdrawal of about $ 20 billion. This is the fastest FPI withdrawal in four months, indicating that there would have been a lot of selling. However, due to the changing notes on the US economy and the strength in the American bond yield, it is difficult to guess how long this stance will continue. This means that the things done in anger may not be transformed into aggressive policy steps. This may reduce concerns and is likely to reversed FPI withdrawal.
What will be the impact of tension on the US tariffs on the markets?
There is a possibility of market fluctuations due to change in US policy and uncertainty over trade conflict. Investors will be cautious for a few months due to these developments. However, such stresses cannot last long or cannot grow rapidly.
Which areas do you overweight and underweight?
We are more overweight on consumption, IT, banking, financial services and insurance, industrial, health care and real estate. Also, underweight on oil and gas, cement, automotive and metals remain. We will continue to prioritize largecap compared to mid and smallcap.
First Published – February 9, 2025 | 10:39 pm IST