Budget Sentiments Over, Market Shifts Focus to RBI MPC Meet on Feb 7
The market is expected to move past the budget announcements and refocus on earnings and the upcoming Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting, scheduled for February 7.
New Delhi: The market is expected to move past the budget announcements and refocus on earnings and the upcoming Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting, scheduled for February 7.
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RBI Likely to Cut Rates in MPC Meeting
The MPC is predicted to implement a 25bps rate cut to further ease market liquidity. This will be the first policy decision under new RBI Governor Sanjay Malhotra and is expected to carry significant weight in shaping market sentiment. The RBI’s decision will also address key interest rates, the Cash Reserve Ratio (CRR), and the Reverse Repo Rate.
Budget 2025-26 Focuses on Consumption and Savings
The Union Budget for FY25-26 has shifted its fiscal focus from capital expenditure (capex) to boosting consumption and savings, while still prioritizing fiscal deficit consolidation. This change comes as the economy faces weaker consumption and subdued sentiments.
Flexibility in Fiscal Approach and Fiscal Deficit Management
Finance Minister Nirmala Sitharaman demonstrated flexibility in adjusting the fiscal stance, opting to stimulate consumption without resorting to populist measures. The Budget also maintains fiscal discipline, with the fiscal deficit for FY26 targeted at 4.4%, slightly below the glide path requirement.
Positive Outlook for Bond Market and Sovereign Rating
This shift is expected to benefit the bond market, bolster India’s position with sovereign rating agencies, and create space for potential monetary accommodation, which could lead to further rate cuts by the RBI.
Also Read: Double-Engine Govt Will Crush the Poor, Middle Class under its Wheels: Kejriwal
Flat Subsidies and Focus on Ease of Doing Business
Subsidies have been kept flat for the third consecutive year, reducing to 8% of total expenditure in FY26E from 14% in FY23. The government also placed a greater emphasis on ease of doing business by promoting self-regulation and self-assessment, simplifying income tax provisions, and reducing compliance burdens.
Market Shifts Focus Back to Earnings and MPC Meet
As the market digests the budget announcements, attention is expected to shift back to corporate earnings and the forthcoming RBI MPC meeting. Earnings growth expectations have been moderated, with the Nifty PAT projected to grow by 5% for FY25 and 16% for FY26. Large-cap stocks are favored over mid- and small-cap stocks, with the Nifty trading at 19.9 times on a one-year forward basis, compared to premiums for Nifty Mid-cap and Small-cap stocks.
