Investors are hoping for a modest relief rally in Indian equities today after a sharp sell-off on Budget day, triggered mainly by higher government borrowing and an increase in Securities Transaction Tax (STT) on derivatives.
The surge in the Centre’s borrowing programme and the higher levy on derivatives trading rattled market sentiment on Sunday. Brokerages believe the continuing fall in gold and silver prices is unlikely to have a direct negative impact on equities. Bullion prices declined again in early trade today, while crude oil slipped below $67 a barrel.
US markets weakened on Friday after President Donald Trump nominated Kevin Warsh as the next Federal Reserve chair, a move seen as inflation-risky. US futures are lower again today, and the fall in bullion prices is also being linked to the nomination.
At GIFT City, Gift Nifty rose to 24,920 in early trade before slipping below 24,890, indicating a mildly positive start for the Nifty.
The increase in STT on derivatives trading led to a steep sell-off in Indian equities. After rising ahead of the Budget, indices reversed sharply lower. At one point, the Sensex fell 2,370 points to 79,899 and the Nifty dropped 748.30 points to 24,571.75 before recovering part of the losses.
Markets were disappointed by the absence of any measures to attract foreign institutional investors back into equities. Higher STT is feared to curb derivatives trading volumes. The government has flagged heavy retail losses in derivatives, and the move may be aimed at discouraging individual participation.
A sharp global fall in bullion and industrial metals dragged metal stocks lower. The metal index plunged 4.05 percent. Hindustan Copper fell 13.11 percent, Hindustan Zinc 9.67 percent, Nalco 8.34 percent and Hindalco 5.78 percent. Vedanta, Tata Steel, Adani Enterprises, Jindal Steel and SAIL also declined sharply.
The fall in gold prices pulled Muthoot Finance down 8.61 percent. However, Titan and Kalyan Jewellers rose about four percent after fears of a hike in gold import duty eased.
Railway stocks such as IRFC, RVNL, RITES and Titagarh Rail fell up to five percent after no new train announcements were made. Defence stocks also weakened as Budget allocations fell short of expectations.
Market-linked stocks were hit hard by the STT hike. MCX fell 11.95 percent, BSE 8.12 percent and Angel One 8.62 percent.
Public sector banks bore the brunt of the sell-off, with the PSU Bank index down 5.57 percent. Bank of India dropped 8.59 percent, Indian Bank 7.65 percent, Bank of Baroda 6.9 percent and SBI 5.31 percent. Higher-than-expected government bond issuance of ₹17.20 lakh crore is expected to pressure bond prices and banks’ treasury portfolios. IT was the only sector to end in positive territory.
The Sensex closed down 1,546.84 points (1.88 percent) at 80,722.94, while the Nifty fell 495.20 points (1.96 percent) to 24,825.50. Bank Nifty dropped two percent. Mid-cap and small-cap indices fell 2.24 percent and 2.73 percent respectively.
Foreign institutional investors were net sellers, offloading ₹588.34 crore worth of shares, while domestic institutions sold ₹682.73 crore.
Technically, the Nifty slipped to 24,572. Holding above this level could lead to a range-bound phase before a possible move towards 25,000. Immediate support is seen at 24,610 and 24,410, with resistance at 25,275 and 25,480.
Precious metals continued to slide amid concerns that Warsh, who is seen as less dovish on rates, could take over as Fed chair. Speculators are unwinding long positions in gold and silver.
Gold, which fell to $4,691.60 an ounce on Friday, closed at $4,891.40. It slipped further to $4,589 in early trade today before rebounding above $4,700.
Silver, which had surged 321 percent over 13 months, has corrected sharply. After touching $121.76 an ounce last week, it fell 35 percent to $73.76 before closing at $85.40 on Friday. It slipped to $76.89 this morning before recovering to $83.20.
In Kerala, 22-carat gold fell ₹6,320 per sovereign on Saturday to ₹1,17,760. On MCX, 24-carat gold closed at ₹1,43,000 per 10 grams after touching ₹1.36 lakh. Silver fell to ₹2,65,652 per kg.
Delays in reaching an agreement between Democrats and President Trump over the Budget meant the spending bill was passed only by the Senate, with the House expected to take it up on Monday. The partial government shutdown continues.
Trump nominated former Fed governor Kevin Warsh as Fed chair on Friday, subject to Senate Banking Committee confirmation. Jerome Powell’s term ends in May. Warsh is seen as less inclined towards interest rate cuts, contrary to Trump’s preference. This triggered a sharp fall in equities early on Friday, though losses were pared by the close.
Warsh’s nomination also dragged gold and silver prices sharply lower, while the dollar index jumped one percent.
US futures were lower this morning, with the Dow down 0.20 percent, the S&P 500 down 0.52 percent and the Nasdaq lower by 0.83 percent.
Asian markets were mixed today. Japan’s Nikkei gained 1.25 percent, while South Korea’s Kospi fell 2.5 percent. Australian indices were also lower. Hong Kong and Chinese markets opened weak, with China set to release factory output data later in the day.
Industrial metals fell sharply on Friday. Copper dropped 3.43 percent to $13,369.50 a tonne, aluminium fell 3.70 percent to $3,146.72, while nickel, lead, tin and zinc declined between 2.5 percent and 6.5 percent.
Crude oil extended losses as fears of a US-Iran conflict eased. Brent fell 3.5 percent to $67.03 a barrel, WTI to $62.94 and Murban to $67.84. Natural gas plunged 15 percent.
The dollar strengthened, with the dollar index rising to 97.20. The rupee weakened to 91.98 against the dollar.
Cryptocurrencies continued to slide, with Bitcoin falling below $76,000, Ether slipping under $2,240 and Solana below $98, before staging a mild recovery.
Market indicators
(February 1, Sunday)
Sensex: 80,722.94 (-1.88 percent)
Nifty 50: 24,825.45 (-1.96 percent)
Bank Nifty: 58,417.20 (-2.00 percent)
Mid cap 100: 57,120.80 (-2.24 percent)
Small cap 100: 16,418.15 (-2.73 percent)
Dow Jones: 48,892.47 (-0.36 percent)
S&P 500: 6,939.03 (-0.43 percent)
Nasdaq: 23,461.82 (-0.94 percent)
Dollar (₹): 91.98 (+0.02)
Gold (ounce): $4,891.40 (-$521.00)
Gold (sovereign): ₹1,17,760 (-₹6,320)
Crude oil (Brent): $69.32 (-$1.54)
