Market's Initial Reaction
The initial response from the stock market to Budget 2026 was notably negative, signaling investor unease. The Sensex plummeted by 1,547 points, and the Nifty
breached the 24,900 mark, reflecting widespread selling pressure. The India Volatility Index (VIX) surged by 10% and later by 11%, indicating heightened market uncertainty. The downturn was broad-based, with nearly 200 stocks hitting their 52-week lows. Several sectors, including realty, midcap, and PSU banks, experienced significant declines, underscoring the immediate impact of the budget on market sentiment. The market's negative reaction was further fueled by factors such as the increase in Securities Transaction Tax (STT) on equity futures to 0.05% and the changes to the tax regime for share buybacks, which reduced their appeal.
Tax Holiday for Cloud
A significant announcement in Budget 2026 was the introduction of a tax holiday until 2047 for foreign companies providing cloud services to Indian customers. This initiative aims to stimulate growth in the cloud computing sector and attract foreign investment. The extended tax break is designed to make India a more attractive destination for cloud service providers, potentially boosting technological advancement and digital infrastructure. This move is expected to have a lasting impact on India's technological landscape, offering long-term incentives to cloud service companies. The tax holiday is anticipated to draw increased foreign investment and spur innovation within India's digital ecosystem.
Sectoral Performance Overview
The sectoral performance following the budget announcement revealed mixed trends. While most sectors traded in the red, some industries saw gains. The Nifty Realty index declined by 1%, snapping a four-day winning streak, suggesting profit-taking in the real estate sector. The Nifty PSU Bank index also faced a downturn, slipping by 4%. In contrast, companies associated with the semiconductor industry, such as CG Power, experienced gains of up to 6% following the unveiling of India Semiconductor Mission 2.0. Additionally, companies like Thomas Cook and Easy Trip saw their shares rise up to 11% due to the reduction in the TCS rate on overseas tour packages. These varied reactions highlighted how different parts of the market are affected by budget decisions.
Expert Commentary & Analysis
Various experts offered their perspectives on the budget's implications. Several analysts noted the negative market reaction and highlighted the uncertainty prevailing in the market. Market analysts pointed out the impact of the increased STT on equity futures and the changes related to share buybacks. Others focused on specific company performance and rating changes. JPMorgan maintained a 'buy' rating on Bank of Baroda, with a target price of Rs 365, while CLSA kept an 'outperform' rating on Bajaj Auto, with a target price of Rs 11,410. Goldman Sachs retained a 'buy' rating on Aurobindo Pharma, with a target price of Rs 1,305, and on Kajaria Ceramics, with a target price of Rs 1,030. These ratings suggest varied outlooks on particular stocks and sectors.
Fiscal Deficit and GDP
Budget 2026 outlined fiscal projections, including the fiscal deficit target for FY27 at 4.3% of GDP and a projected debt-to-GDP ratio of 55.6% in FY27. These figures provide insight into the government's fiscal strategy and its approach to managing public finances. The center also announced that simplified income tax rules would be notified shortly. The increase in capital expenditure, signaling continuity in public investment, takes place as private capex recovery remains uneven. These measures indicate the government's focus on maintaining fiscal discipline while promoting economic growth and investment, especially by increasing the safe harbor limit from Rs 300 crore to Rs 2000 crore for IT services.
Tourism and Other Initiatives
Budget 2026 included various announcements concerning the tourism sector and other key initiatives. Bumper tourism announcements included medical hubs, a global big cat summit, and the training of guides. In addition, basic customs duty exemptions were introduced for the import of capital goods required for processing crucial minerals in India. The budget also addressed changes to share buyback taxation. These diverse measures suggest a multi-pronged approach to foster economic development, promote specific industries, and optimize tax policies.
Market Rebound & Factors
Despite the initial downturn, the market showed signs of recovery later in the trading session. The Sensex recovered 1,900 points from its day's low, and the Nifty neared 25,150. Several factors contributed to this rebound. The recovery highlights the dynamic nature of market sentiment and how it can shift rapidly in response to news and changing conditions. The factors behind the market's recovery include investor reassessment of the budget measures, bargain hunting by investors, and sector-specific developments. These elements, combined, create the complex landscape of the stock market's reaction to the budget.
