Tag: Union Budget 2021-22

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Union Budget 2021-22: Main Highlights and Stocks To Benefit

Finance Minister Smt. Nirmala Sitharaman presented the Union Budget 2021-22 in the Parliament on February 1, 2021. It will facilitate a ‘reset of the Indian economy’. Amidst the pandemic, the total impact of Atmanirbhar Bharat and measures by RBI was at Rs 27.1 lakh crore (~30% of our GDP). The budget has now included a set of important schemes that target different sectors of our economy. Let us take a look at some of the key highlights from the Budget presentation.

Boost for the Healthcare Sector

The Finance Minister has announced a Rs 64,180 crore package for the healthcare sector, which will be spread over the next 6 years. This would come under the PM Atmanirbhar Swastha Bharat Yojana. Under this scheme, around 17,000 rural and 11,000 urban health and wellness centres will be set up. Launch of Integrated public health labs will happen in each district of the country.

The Finance Minister also said that more Covid-19 vaccines will be produced and linked to labs across India. An amount of Rs 35,000 crore will be allocated for the manufacturing and distribution of vaccines. The budget outlay for Health and Welfare is Rs 2.23 lakh crore, a 137% increase compared to the previous year. Pharma stocks can be watched.

The Scrappage Policy

The FM has announced a voluntary scrapping policy. Passenger vehicles (PVs) older than 20 years and commercial vehicles (CVs) older than 15 years must undergo a fitness test. This will help reduce the pollution levels in our country. It will also provide a demand boost for the automobile sector.

The fitness test will be conducted at automated fitness centres, which will determine whether the vehicle in question is qualified to run on roads or headed for the scrap heap. Each fitness test would cost approximately Rs 40,000. This is in addition to the road tax, and possible “Green Tax” that you have to pay while mandatorily renewing your private vehicle’s registration after the 15-year period. This would ultimately ensure that individuals get rid of their old cars and purchase new ones. We are waiting for more details. Stocks like Ashok Leyland, Tata Motors and Eicher Motors will benefit the most.

Boost for Infrastructure Sector

The Finance Ministry will set aside a total amount of Rs 5.54 lakh crore for the infrastructure sector. The Government will set up a Development Finance Institution (DFI), which will receive an initial capital of Rs 27,000 crore. The DFI aims to have a lending portfolio of Rs 5 lakh crore in 3 years. This DFI will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP). It will be beneficial for infra companies like GMR Infra, which may otherwise not be able to take more loans as they already have high debt.

A National Monetisation Pipeline for brownfield projects will be launched. This includes:

  • 5 operational roads with an estimated enterprise value of Rs 5,000 crore will be transferred to the National Highway Authority of India (NHAI) Infrastructure Investment Trust (InvIT).
  • Transmission assets worth Rs 7,000 crore will be transferred to Power Grid Corporation of India Ltd (PGCIL) InvIT.

The Ministry of Road Transport & Highways will be allocated a total amount of Rs 1.18 lakh crore. Highway infrastructure projects will be given a boost. This includes building 8,500-km of highways by March 2022. We could see many listed construction or infrastructure companies receiving orders from NHAI for taking over such projects. Highway builders including Dilip Buildcon and even L&T will benefit. The proposed highway works include:

  • 3,500 km corridor in Tamil Nadu
  • 1,100 km in Kerala at an investment of Rs 65,000 crore
  • 675 km in West Bengal at a cost of Rs 95,000 crore
  • 1,300 km in Assam in the next 3 years
  • Out of the Rs 1.10 lakh crore allocated for Railways, Rs 1.07 lakh crore will be towards capital expenditure. JSPL will benefit for more track laying. Also, the Indian Railways will monetise dedicated freight corridor assets for operations and maintenance after commissioning. IRCTC will obviously benefit.
  • The FM said that Indian Railways will prepare a future-ready railway system by 2030 referred to as the National Rail Plan.

Boost for Power Sector

The Indian power sector will receive additional funding of Rs 3.06 lakh crore. Pipelines of GAIL (India) Ltd, Indian Oil Corp (IOC), and HPCL will be monetised. The Ujjwala scheme will be extended to cover 1 crore more beneficiaries. [The Pradhan Mantri Ujjwala Yojana is a scheme of the Ministry of Petroleum & Natural Gas for providing LPG connections to women from Below Poverty Line (BPL) households]

  • 100 more districts will be added to the Ujjwala scheme in the next 3 years for city gas distribution.
  • An independent gas transport system operator will be set up to ensure equal access to all citizens.
  • The government has announced a new gas pipeline project for Jammu and Kashmir. 

The Finance Minister has also proposed to allocate Rs 1,000 crore to the Solar Energy Corporation and Rs 1,500 crore to the Renewable Energy Development Agency.

PLI Schemes

The government aims to spend Rs 1.97 lakh crore on various Production Linked Incentive (PLI) schemes over the next 5 years. This is in addition to the Rs 40,951 crore announced for the PLI for electronic manufacturing schemes. To achieve double-digit economic growth, PLI schemes to create manufacturing global champions for an ‘Atmanirbhar Bharat’ have been announced for 13 sectors.

In November 2020, the government announced a mega PLI scheme for 10 sectors. This included advanced chemistry cell batteries, electronic products, automobiles & auto components, pharma, telecom & networking products, textile, food products, white goods, and speciality steel. This will encourage global players to kickstart their manufacturing activities in India. It would also provide employment opportunities to lakhs of people.

Divestment Targets

Divestment target has been set at Rs 1.75 lakh crore for the upcoming financial year.

  • For the current financial year (FY21), the government had budgeted to raise Rs 2.1 lakh crore through divestments. However, they have fallen short of the target.
  • The stake sale of Life Insurance Corporation (LIC) will be completed this year. The initial public offering (IPO) of LIC will be conducted in FY22.
  • The strategic disinvestment of companies including BPCL, Air India, Pawan Hans, IDBI Bank, Container Corporation of India (CONCOR) will be completed in 2021-22.
  • Seven major ports worth Rs 2,000 crore will see their operations privatised in the year 2021-2022.
  • The next lot of airports will be privatized in Tier 2 and 3 towns and cities. As we know, the Adani Group has taken over the operations of multiple airports from the Airports Authority of India (AAI). Adani Enterprises and GMR Infra can be noted.
  • The government has approved a new Public Sector Enterprise Policy, which aims to accelerate privatisation activities.

Boost for Banking and Insurance Sector

The Finance Minister has announced a further infusion of Rs 20,000 crore for public sector banks. Another major update is the proposed launch of an Asset Reconstruction and Asset Management Company. This particular institution will take over the existing stressed/bad debts of commercial banks. It will acquire bad loans from banks at a negotiated price (at a discount from book value) and pay by way of cash and security receipts. The funds for buying the bad loans will come from the sponsors (government and other banks) and alternative investment funds. The institution will then restructure and turnaround the bad loans for a fee. PSU Banks will benefit the most.

A hike in Foreign direct investment (FDI) in the insurance sector to 74% from the existing 49%. Under the new structure, the majority of directors and key management persons have to be Indian residents. However, this move will help increase capital inflow in insurance companies and enhance their expansion and growth. This increase in FDI limits will help insurance companies to raise funds to ensure that financial stability is maintained- in line with growing business needs. Insurance stocks will benefit, both life and general.

Boost for the Agricultural Sector

The Finance Minister has proposed to increase the agricultural credit target to Rs 16.5 lakh crore. The Finance Minister stated that the government is committed to the welfare of farmers. State-run Agricultural Produce Marketing Committees (APMCs) will now be able to access the Rs 1 lakh crore Agriculture Infrastructure Fund (AIF). However, the budget allocation for the Department of Agriculture, Cooperation and Farmers Welfare has been slashed 8.5% for 2021-22. The flagship PM-KISAN scheme, meant to provide income support to farmers, saw a 13% drop in its budget. Certain provisions in the budget for the agricultural sector include:

  • The provisions for the rural infrastructure development fund will be increased to Rs 40,000 crore from the existing Rs 30,000 crore. Infra companies including road builders and cement manufacturers will benefit.
  • The amount allocated for micro-irrigation activities will be doubled to Rs 10,000 crore.
  • The agriculture infrastructure fund will be made available to Agricultural Produce Marketing Committees (APMCs).
  • The government has proposed a farm cess of Rs 2.5 per litre on petrol, Rs 4 per litre on diesel. Prices of petroleum products will likely go up even more.

Boost for Real Estate Sector

This government continues to see ‘Housing for All’ and affordable housing as priority areas. The Ministry of Housing and Urban Affairs has been granted Rs 54,581 crore in the Budget 2021. To incentivise home buyers and real estate developers, it is proposed to increase the safe harbour limit from 10% to 20% for the specified primary sale of residential units. [Safe harbor is a legal provision to eliminate regulatory liability in certain situations, provided that certain conditions are met. It refers to an accounting method that avoids certain tax regulations]

In the July 2019 Budget, the government provided an additional deduction of interest, amounting to Rs 1.5 lakh, for loans taken to purchase affordable houses. The Finance Minister has proposed to extend the eligibility of this deduction by one more year, to March 31, 2022. Also, affordable housing projects can avail a tax holiday for one more year. All realty stocks will benefit but do note especially the ones who provide affordable housing.

Cement stocks will benefit, including ACC and UltraTech Cement among others.

Tax Relief

No COVID-cess was announced, with no increase in corporate taxes. Senior citizens above the age of 75 years will now be exempt from filing income tax returns. However, such individuals will have to continue to pay income tax at their respective tax slabs. FM Sitharaman has proposed to give tax holiday for aircraft leasing businesses in Gujarat International Finance Tec-City (GIFT City). [A tax holiday is a temporary reduction or elimination of a tax] The minister has also proposed an extension of tax holiday for start-ups by one more year.

Other announcements on tax include:

  • Dividend payment for Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvITs) will be exempted from tax. Watch REITs stocks.
  • The government has proposed to increase the threshold for tax audits from Rs 5 crore to Rs 10 crore (for those transacting 95% digitally).
  • Advance tax liability on dividends will arise only after the declaration of the dividend.
  • Foreign Portfolio Investors (FPIs) will get a deduction of tax on dividends at a lower treaty rate. We may see more inflow of FII funds.
  • The government will also notify rules to eliminate the double tax for NRIs on foreign retirement funds.

Customs Duty Structure

  • MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices. Thus, customs duty on semi, flat, and long products of non-alloy, alloy, and stainless steels will be cut to 7.5%.
  • The duty on copper scrap will be reduced from 5% to 2.5%.
  • Customs duty on Naptha (used in solvents, paints, etc) will be reduced to 2.5%.
  • The customs duty on certain auto parts will be increased to 15%. This will bring them on par with the general rate on auto parts.
  • To benefit farmers, the customs duty on cotton will be raised to 10%. The duty on raw silk and silk yarn will be increased from 10% to 15%. 
  • The customs duty on mobile components will be increased to 2.5%. Domestic electronics manufacturers like Amber and Dixon will benefit.

Other Major Announcements

  1. With the continuing focus on Atmanirbhar Bharat, Nirmala Sitharaman announced the establishment of 7 mega textile parks over the next 3 years. Also, 5 major fishing hubs will be developed across India.
  1. The Finance Ministry will notify the Securities and Exchange Board of India (SEBI) as the regulator for gold exchanges.
  1. A scheme to promote the flagging of merchant ships in India will be launched by providing subsidy support to Indian shipping companies in global tenders. An amount of Rs 1,624 crores will be provided over 5 years.
  1. The government has proposed a Rs 1,500 crore-scheme to promote digital transactions in the country. This will support the adoption of e-payments in smaller cities.
  1. The fiscal deficit has been estimated at 9.5% of GDP for 2020-21. Fiscal deficit for 2021-22 at 6.8% of GDP. [Fiscal deficit is the difference between total revenue and total expenditure of the government]. The estimated gross borrowing by the government for FY 2021-22 will be Rs 12 lakh crore.

Finance Minister Nirmala Sitharaman has tabled the 15th Finance Commission report in Lok Sabha. 

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Finance Minister Presents Union Budget 2022 in Parliament – Top Indian Market News

Finance Minister presents Union Budget 2022 in Parliament

Finance Minister Nirmala Sitharaman has presented the Union Budget 2021-22 in the Parliament. The minister has announced the scrapping of income tax for senior citizens above 75 years and new rules for the removal of double taxation for NRIs. Sitharaman has also announced a Rs 64,180 crore package for the healthcare sector, which will be spread over the next 6 years. A voluntary scrapping policy for old vehicles has also been launched. India’s fiscal deficit is set to jump to 9.5% of the GDP in 2020-21.

Read more here.

Automobile companies register strong sales growth in January

Major automobile companies registered healthy sales growth during January 2021. Tata Motors posted a 28% YoY increase in domestic sales to 57,742 units, which was led by higher car sales. TVS Motor Company reported a 31% YoY increase in total sales to 3.07 lakh units in January. Mahindra & Mahindra’s farm equipment sales rose 50% YoY to 34,778 units. Maruti Suzuki posted a 4.3% YoY increase in total sales to 1.60 lakh units during the same period.

Read more here.

Adani Green Energy commissions 100 MW solar power plant in Uttar Pradesh

Adani Solar Energy Four Pvt Ltd, a subsidiary of Adani Green Energy Ltd (AGEL), has commissioned a 100 MW (2×50 MW) solar power project at Jalalabad in Uttar Pradesh. The two solar plants have power purchase agreements (PPAs) with Uttar Pradesh Power Corporation Ltd (UPPCL) at Rs 3.22/kWh and 3.19/kWh, respectively, for a period of 25 years. This places AGEL’s total renewable portfolio of 14,815 MW well on track to reach its vision of 25 GW capacity by 2025.

Read more here.

SJVN bags 679 MW hydroelectric project in Nepal

SJVN Ltd has received an order from the Investment Board of Nepal to construct a 679 MW Lower Arun Hydropower Project. The project will be constructed under a Build, Own, Operate and Transfer (BOOT) model. On completion, the project will generate 3,561 million units of electricity per annum. 

Read more here.

Kansai Nerolac Paints Q3 Results: Net profit rises 76% YoY to Rs 204 crore

Kansai Nerolac Paints reported a 76.58% YoY increase in consolidated net profit to Rs 204.5 crore for the quarter ended December (Q3). Its revenue rose 19.68% YoY to Rs 1,606.86 crore during the same period. The company stated that both the decorative and industrial segments witnessed double-digit volume growth in Q3. 

Read more here.

Coromandel Q3 Results: Net profit rises 26% YoY to Rs 333 crore

Coromandel International Ltd reported a 26.20% YoY increase in net profit to Rs 333.80 crore for the quarter ended December (Q3). Its revenue rose 7.76% YoY to Rs 3,541.87 crore during the same period. The company’s board has declared an interim dividend of Rs 6 per share. Hyderabad-based Coromandel International is in the business of fertilizers, pesticides, and specialty nutrients.

Tata Power gets LoI for distribution and retail sale of electricity

Tata Power Ltd has received a Letter of Intent (LoI) from the Odisha Electricity Regulatory Commission (OERC) for the distribution and retail supply of electricity in the 5 circles of North Eastern Electricity Supply Company of Odisha Ltd’s (NESCO) Utility. This includes the areas of Balasore, Bhadrak, Baripada, Jajpur, and Keonjhar. The proposed sale of NESCO Utility to Tata Power will be through the formation of a Special Purpose Vehicle (SPV) entity.

Read more here.

Zensar launches integrated Digital XDR solution

Zensar Technologies Ltd has launched an integrated Digital XDR (extended threat detection response) solution as part of its Digital Foundation Services offerings. The XDR solution provides organizations with adaptive expert intelligence and threat prediction capabilities by prioritizing the business risk tailored to their environment. This offering eliminates the need for expensive hardware appliances and provides usage-based threat detection and hunting services. 

Read more here.

Rane Brake Q3 Results: Net profit rises 26% YoY to Rs 12 crore

Rane Brake Lining Ltd reported a 25.9% YoY increase in net profit to Rs 12.88 crore for the quarter ended December (Q3). Its revenue rose 4.7% YoY to Rs 126.58 crore during the same period. The Chennai-based company manufactures and sells brake pads, brake blocks, and other friction materials for the automobile industry.

MRPL Q3 Results: Net loss at Rs 71 crore

Mangalore Refinery and Petrochemicals Ltd (MRPL) reported a net loss of Rs 71 crore for the quarter ended December (Q3). It has posted a net loss of Rs 37 crore in the corresponding period last year. The company’s revenue from operations stood at Rs 14,136 crore in Q3, compared with Rs 16,745 crore in Q3 FY20. The gross refining margin (GRM) of MRPL stood at $3.26 per barrel in Q3 FY21, as against $3.19 per barrel in the corresponding period last year.

Read more here.

NCC secures five new orders worth Rs 1,200 crore

NCC Limited announced that it had received five new orders worth Rs 1,200 crore in the month of January 2021. Out of these, orders worth Rs 607 crore pertain to the Water & Environment Division, and order worth Rs 593 Crore pertain to its Buildings Division. These orders have been received from various Central/State Government agencies.

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Editorial

Union Budget 2021: Expectations

All eyes are focussed on the Union Budget 2021-22 that will be presented by Finance Minister Nirmala Sitharaman on February 1. As we know, the Covid-19 pandemic had led to disruptions in all major economic activities. The upcoming Budget has greater significance, as it would give us a clear picture of how the Central Government plans to allocate essential funds to revive our economy. The Finance Minister had stated that this budget would be unlike anything we have seen over the past 100 years of India’s history.

Over the past few months, there have been multiple reports or rumours that indicate the different sectors of India’s economy that are likely to benefit from the Budget. Let us take a look at some of these sectors.

Agriculture Sector

The agriculture sector had single-handedly supported the Indian economy while other major sectors were at a near standstill amidst the Covid-19-related lockdown. With the ongoing farmers’ agitation in Delhi, the government is expected to send across a positive message to the farmers in the country. It has been reported that the Union Budget would continue to focus on agriculture and allied sectors. In fact, ‘farmer welfare’ could be the central theme of this Budget.

A sharper focus is needed on the development of farm gate infrastructure, formulation, and strengthening of farmer collectives. Experts have suggested that the government could spend more to improve warehousing and cold storage facilities for farmers. There should be a further limit on the price of fertilizers and other chemicals. There are also expectations of providing nominal logistics support to poor farmers.

However, farmers have made their demands clear: a guarantee on the Minimum Support Price (MSP) and permanent withdrawal of the three farm laws. As farmers continue to protest, it will be interesting to see if the government has any plans to put an end to the agitation through its Budget. 

Healthcare Sector

The ongoing Covid-19 pandemic has taught the entire world the importance of having a strong healthcare sector. Increased public spending on healthcare will be one of the primary expectations of the upcoming Budget. We have realised the importance of improving healthcare infrastructure in public hospitals throughout India. More funds will have to be pumped into Ayushman Bharat, which is a scheme that aims to help economically vulnerable Indians who require healthcare facilities. People could expect the government to increase the deduction threshold for medical insurance. 

On the GST front, the government can consider making healthcare more affordable by introducing a ‘zero-rating’ of GST for healthcare services. [Zero rating means that the entire value chain of the supply is exempt from tax]. This will help in keeping the credit chain intact and ensuring that tax is not added to the cost of healthcare services.

One of the critical requirements in the healthcare ecosystem is a skilled workforce. The arrival of new products and technologies makes it imperative that there are continuous learning and skill enhancement for healthcare professionals. It is also important to provide greater investment for preparedness against other health emergencies that may arise in the future. Thus, there should be more investments in diagnostic testing capabilities and contact tracing mechanisms.`

Banking Sector

The financial system has been under severe stress following the Covid-19 outbreak, and the banking system is still facing asset quality issues. In Union Budget 2021, industry experts are hoping that the government will focus on better governance in the banking sector and simplification of compliance and regulation. There is an expectation that the number of public sector banks will be reduced from 12 to 4. This may include merging and also privatisation of banks. 

According to RBI, the gross non-performing assets (NPAs) of banks could increase to 14.8% by September 2021, under the worst-case scenario. Through recent interactions with the media, the Finance Ministry indicated the idea of setting up a ‘bad bank’ to handle the expected influx of bad loans after the Covid-19 pandemic. A bad bank will have the power to purchase bad loans from banks at the market price. It acts as an aggregator of all the stressed assets in the banking system. This will allow the banks to clear their balance sheets and improve their fundraising capabilities.

Automobile Sector

The automobile sector had been witnessing a slowdown even before the pandemic. This was primarily due to regulatory changes, millennial buying preferences, and an increase in the cost of ownership. According to Moody’s, the Indian auto sector is expected to decline by 30% in the calendar year 2020, amid a contraction in GDP and the Covid-19 pandemic. Even though the festive season had provided a boost to vehicle sales, the automakers are worried that the demand would not sustain. Large automobile firms are also increasing the prices of their two-wheelers, passenger vehicles, or commercial vehicles due to an increase in input costs.

The automobile industry has high hopes from Union Budget 2021. Here are a few: 

  • Currently, a bike that costs Rs 50,000 is taxed at 28% GST- which is similar to a passenger car worth lakhs. It has been reported that a 10% GST reduction could boost demand for two-wheelers. 
  • Vehicle loans under Rs 5 lakh could be considered as priority sector lending (PSL) by banks. This will encourage banks to provide more loans to customers and lead to enhanced credit creation. Ultimately, it would also increase the demand for automobiles.
  • A new policy to scrap cars, buses, and trucks that were more than 15-years-old, is expected to be announced in the Budget. It would also incentivise the purchase of new vehicles. You can read more about the vehicle scrappage policy here.
  • Electric mobility is another key priority area for the government. There are many Indian promoters and international groups that are willing to invest in the electric vehicle (EV) segment. To boost demand, India needs to improve upon essential infrastructure such as electric charging stations.

Realty Sector

The contribution of the real estate and construction sector to India’s overall economic activity is quite significant. The Covid-19-related lockdowns had caused severe disruption in sales and construction. With the easing of restrictions, there has been a strong recovery in sales and development activities. However, the housing sector will look forward to additional measures that can support recovery in demand and remove supply-side challenges faced by developers. 

There have been several reports stating that the Union Budget would consider expanding the current income tax benefits available for homeowners. There is an expectation that buyers will get home loans at affordable rates and a moratorium on loan payments. This would encourage more people to buy properties. Realty firms have stated that the government should allow real estate developers to set off Goods & Service Tax (GST) paid on inputs like cement from tax liability on rental income. This would help avoid double taxation and give a boost to the office market to help India maintain its advantage in various sectors like IT and startups. 

Covid Cess

Amidst the Covid-19 pandemic, the Centre should focus on providing more access to basic necessities such as healthcare, drinking water, and housing. More money should be put into the hands of citizens so that consumption receives a push. This is possible through well-defined tax reliefs or exemptions. In order to ensure a V-shaped recovery of the economy, all financial resources must be utilised or allocated judiciously. 

However, the government is likely to impose Covid Cess to fund additional spending due to the pandemic, including that on vaccines. If the government charges an additional 2% Covid cess on income tax, then the total cess amount would go up to 6%. The current 4% cess imposed on income tax was introduced in Union Budget 2018 by ex-finance minister Arun Jaitley. This means that our tax liability would go up (based on the current tax slabs). 

Such a cess will only help the Centre obtain more revenue, while states will gain nothing. Several reports indicate that the Covid-19 cess will be primarily imposed on large corporates and high net-worth individuals (HNIs).

Markets do not like increased taxes. In fact, when Nirmala Sitharaman decreased corporate taxes on 19 September 2019, markets rallied like anything and the candlestick formed was called the Nirmala Sitharaman candle. Will we see a fall like this if an increase in tax is announced?

Conclusion

We have only mentioned a mere five sectors that could receive benefits from the Union Budget 2021-22. Fast-moving consumer goods (FMCG), retail, logistics, power generation, telecommunications, and other essential sectors are also expected to receive a much-needed boost. To attain self-reliance of essential resources, the government is likely to introduce more programmes under the Atmanirbhar Bharat Abhiyan. Production linked incentive (PLI) schemes could be launched for more sectors. These measures would encourage domestic and multinational companies to ramp up their production activities in India. Lakhs of people would be able to obtain employment opportunities. It is also vital that our country gives additional importance to renewable energy sources and the infrastructure surrounding them. 

The Narendra Modi government may also introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the Budget session of the Parliament. This would lead to the ban of private cryptocurrencies in India (such as Bitcoin). Interestingly, the government has plans to launch a digital version of the Indian Rupee.

The Finance Ministry has sought valuable insights from industry experts from all major sectors. They have now prepared one of the most important budgets in India’s recent history, which would set the path for further economic growth. Will all the essential sectors receive the incentives or benefits that they require? We will have to wait and watch.

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Why is NIFTY Falling so Heavily? Find all the Reasons Here!

On 20th January, NIFTY closed at 14,644 points. The next day, it opened with a gap-up at 14,730 points. Just like us, you would have also expected NIFTY to cross the major mark of 15,000 points this week itself.

Startlingly, the next four trading sessions have been completely dominated by the bears. On 28th January, NIFTY closed at 13,819 points. Look at the chart below to understand how the trend has completely reversed in the last five candles. All of the last five candles have created lower lows (as shown by the yellow line). This tells us that the sentiments in the market are pretty bearish.

Within five trading days, NIFTY has lost more than 900 points! What is causing this amazing fall in the market? How have things changed suddenly in the market? When the market is falling so freely, you cannot attribute just one reason. There has to be a cumulative effect which is dragging down the market. Let’s dig deeper and understand why the markets are actually falling!

FIIs are Finally Selling!

(To know who FIIs are, click here.)

From 17th November 2020 to 21st January 2021, FIIs turned into a net seller for just two trading days. These days were 21st December 2020 and 6th January 2021. The net selling quantity in both of these days was pretty low as well (Rs 323 crore and Rs 483 crore respectively). 

All this while, FIIs were pumping a huge amount of money into the Indian equity market. Why? The interest rate in many markets is almost 0%. This means, even if you borrow the money, you don’t have to pay a lot of interest. The FIIs are borrowing money and investing in the equity market. When the market goes higher they will start booking their profits. They will pay their liabilities and enjoy the profits they have earned. Very simple, right? It is the retail investors who get trapped in this cycle. He is unaware of when to exit and in the bullish market, he expects his portfolio to turn even greener.

The tides have changed significantly now. In three continuous trading sessions, FIIs have pulled out a lot of money. On 22nd, 25th and 27th January, FIIs have been a net seller for Rs 635 crore, Rs 765 crore and Rs 1,688 crore respectively. This is still very less compared to how much they have been buying in the last many weeks. We have been saying that FIIs have been on an unimaginable buying spree over the last few months. Is that rally finally over now?

Retailers have also been part of the ride, and many booked profits in the peak.

Global Markets Running out of Steam?

Dow Jones reached 31,188 points on 20th January 2021. Since then, it has lost almost 1000 points in just one week. FTSE 100 is an index of England’s stock market. The index crossed 6,850 points on 8th January 2021 but has fallen to 6,550 points as of 28th January. A similar pattern can be observed with DAX, a German stock index. The index lost more than 500 points in the last 12 trading sessions. 

As explained above, the low-interest rates prevailing in a low economy helped institutions to borrow money and invest in the stock market. This high liquidity generated a lot of bullishness in the global market as they kept on rallying on. In the last few months, we also heard several vaccines coming out claiming that they are the effective cure of Covid-19. The vaccination program has also started on a large scale in many countries. Not much attention is given to that now. So, are the global markets falling just because they are out of all the good news?

We have institutions booking profits, and then panic selling in the markets by retailers.

Fun fact: The inauguration of Joe Biden as the 46th president of the United States of America took place on January 20, 2021. Markets falling steeply after that date is just a coincidence, right?

Farmers’ Protest

For more than 50 days, thousands of farmers are protesting on the outskirts of Delhi. On 26th January, when the nation was watching the famous parade on India Gate, we heard some really hurtful news. There was a large violent clash between the Delhi police and the farmers. The stills from Red Fort, one of the most prominent monuments of India, was highly embarrassing.

Many people even compared this to the agitation seen at the US Capitol a few days back. The violent and disturbing event which unfolded sent negative impressions to the investors. They try to stay away from the market which is facing unrest and invest in other markets. This is a common behaviour of all the investors. Will you invest in a country which is dealing with a lot of internal conflicts? No. We wonder if this is the reason why FIIs sold worth Rs 1,688 crore on 27th January.

The Upcoming Union Budget 

India’s Union Budget for 2021-22 is set to unveil on 1st February 2021. Many analysts claim that this is one of the most important budgets in recent times due to Covid-19’s financial impacts. All eyes will be on the Financial Minister, Nirmala Sithariman, as she delivers her all-important speech after two days. 

Big events like elections or budget announcements are quite unpredictable. These events can cause huge volatility in the market. Thus, many of the investors try to stay away from the market these days. With the market reaching its all-time high, many investors would have taken the safe route to book their profits and move out of the market. If the budget sounds positive to their ears, we can expect the market to make a come back.

Remember to hold only fundamentally strong stocks in your portfolio, companies which you understand well. Maintaining stop losses on stocks you hold is also not a bad idea. Book profits from the random stocks in your holdings and reinvest in good stocks a bit at a time, not altogether.

Do you think there is any more reason why NIFTY is falling? Let us know in the comments section of the marketfeed app.