In not so exciting day today, stocks weren’t really moving, with very specific sectors again leading the rally in mid and small caps.
Let’s discuss the market. The real estate tax shakeup is coming. That is the strong rumor in the market, and you could see real estate stocks zoom up today in an otherwise dull day. We’ll discuss what all is getting rumored about it in the second half of the blog
Market Overview
Where are the markets headed? Markets are absolutely flat. The last two sessions have been dead flat, with the market closing where it opened. Yesterday it was a 0% day; today also at 0.11%. Nifty is not willing to move right now. It needs some trigger, but at least it is not falling. That is the saving grace because after this kind of a rally from the last month and a half, an easy 1000 points is a very, very easy giveaway at any point in time. So as long as you know it’s not happening, we should feel reasonably comfortable.
Also, I think with the budget now, with tomorrow being a holiday Wednesday, we only have two sessions left this week and a couple of sessions next week. So we are very, very close to the budget now. And that also, whatever adjustments need to be made before the budget process, probably are done. Even the same thing that we witnessed before the general elections, the last couple of months before the election, the market wasn’t going anywhere. We were still stuck in this wave-like fashion with tops getting made at 22,800 and bottoms at 21,800. And then we had the volatility post that. I’m somewhat guessing that we will get, not as much, but some volatility nearer or actually on the budget day. And let’s see where we go from there.
Nifty Next 50
Nifty Junior was down by 0.6%, so not as strong as Nifty today. In the last five sessions, we’ve had four sessions of downward movement from the open. Only yesterday’s session was up. So there is some exhaustion of momentum that can be seen here as well.
Nifty Mid and Small Cap
In terms of the mid caps, again 0.04%. So we exactly closed where we had opened. Only yesterday was an update after five sessions, and today again we’ve not been able to go up further. The market is a bit tired on this front.
On small caps, there was no movement at all, 0.18%. The last seven sessions, rather eight sessions, have been in a very narrow range. So the small caps also seem to have exhausted the current momentum here.
Nifty Bank Overview
Bank Nifty again, the last seven sessions within a significantly small range. So the market has become absolutely dull and flat, and every day there is one section, one sector that keeps on rotating, keeps taking the lead and making the market stay relevant on a daily basis.
GOLD
Gold, on the other hand, is breaking out. This is the gold US dollar chart as of 16 July around 4:00 PM. You can see that we are headed towards an all-time high close today if there is no last-second blip here. And I think this is telling you that gold is about to go very big. How big? I think at least a couple of hundred points, you know, not out of reach right here. And that would mean a big, big move even on the INR gold chart.
Nifty Heatmap
In terms of today’s heat map, you can see that Reliance gave up some ground, one and a half percent. Kotak Bank was down 2%. Ultra Cemco was down 1.5%.
You also had some pharma names come off – Cipla and Dr. Reddy came off. NTPC was down 1.3%. But FMCG and energy public sector enterprise stocks were the ones in focus. Lever was up almost 2.7%. Tata Consumers up 2.2%. You also had Britannia go up 0.82%. So again, a slight defensive mode in terms of the movement of the money. Coal India and BPCL also doing well at 3% and 2.6%. Bharti Airtel also doing well at 1.92%.
LIC has been doing very, very well. Maybe there is some expectation about some tax relief in terms of LIC. The expansion of section 80 cd, that is something that people are looking for.
Jio Finance, however, after its poor results, was down 3%. IRFC and other rail stocks also were down today. Zomato, after yesterday’s hurrah, was smashed down after they announced that they will make it free within a certain specific kilometer range and not charge the convenience fees. Siemens and Trent also down. Gas 30 down. HAL and BEL also down, along with Varun Beverages and REC.
So many stocks were just sort of correcting and listless in terms of their movement during the day.
Sectoral Overview
If we see the sectoral data, you can see that real estate stocks leapt up 1.7% tday. Real estate has been very, very quiet the last week and a month or so. Of course, on a twelve-month basis, real estate stocks have done really well. But in the last one month, 0.3% negative, last one week, 0.1% negative, and today we were up 1.7%. So certainly the market has picked up this rumor that I’m going to talk about and tried to push up the real estate stocks.
FMCG also going up at 1%. IT up 0.6%, consumption at 0.4%. So consumption also, because there are budget expectations that there will be some relief to salaried taxpayers, and hence some basic consumption items can go up. So that is where the defensive move has been in the market today. And all other sectors were practically flat or down, with public sector enterprises actually booking some profits at -0.6%
Sectors of the Day
Nifty FMCG Index
FMCG has been doing well since we broke out of this cup and handle that I talked about a few sessions ago. In the last eight sessions, we have moved without a break on a daily basis and continue to go up. So FMCG has certainly caught the attention of the market.
Stocks of the Day
Alembic Pharmaceuticals
Stock spotlight is on Alembic Pharma. We are up nearly 10% today. A fantastic chart. You can see how it built up this entire base from almost Rs30 to Rs580 or Rs600 over a period of five years when the pharma rally was very, very strong. Then pharma as a whole went into a correction, but this went virtually sideways, a time correction, and then it broke out again. Then it came back and retested this base and is now ready to break out again. So there is potential that this will go up far. Let’s see how it does. A very, very good move in terms of the stock hitting new highs on a dull day.
Story of the Day
Now, about the real estate tax shakeup, what do we need to know? This was the headline today: the long-term capital gain on real estate is in for a new role in budget 2024. Of course, these are all rumors, expectations. Nothing can be said about what is actually coming or not. But since leading newspapers have carried this news based on very strong sources and stocks have actually moved based on these moves, there could be something to it. As they say, there is no smoke without fire.
So currently, what is the status? There is a short-term capital gain for real estate. The time period is 24 months. If you hold any real estate for less than 24 months, you basically pay your slab rate. If my slab rate is 30%, I pay 30%. If my slab rate is 39% or whatever that is at the highest level, you pay that much. This compares very unfavorably to equities where you have within twelve months, if you are buying or selling equities, you are paying only 15%. When you compare this with gold or debt funds, the time period is 36 months. So if you are buying gold and selling gold within 36 months, you pay the slab rate. If you are buying and selling debt funds within 36 months, you pay the slab rate.
Within real estate, there is the benefit of indexation over the long term. So over 24 months, if I’ve held something for five years, then I pay 20% long-term capital gains with the benefit of some indexation. But because inflation has been benign, the indexation benefit is rather poor. For listed equities or mutual funds, over any twelve-month period, the rate is 10% only. For gold and debt funds, over 36 months, the rate is 20% without indexation benefits.
There has been murmur since a long while that why should different asset classes have different tax treatments? We are pushing people towards one asset class, giving incentives, but there has to be some sunset to that particular tax benefit, or you make other asset classes also compete equally on the taxation front. So why should any asset class be not looked at favorably because of taxation reasons? That is the intent of that discussion. Personally, I think that makes sense. If some asset class has a natural affinity, we should not penalize them with higher tax rates. Taxation should not depend on which capital asset you are creating.
