The heightened volatility in the Indian stock market could be, to some extent, attributed to investor caution ahead of the Union Budget 2025. Experts anticipate that the market could stabilize following the budget announcement.
According to stock market expert G. Chokkalingam, who is also the founder and head of research at Equinomics Research Private Ltd, the Budget 2025 could lift market sentiment.
“Budget can lift market sentiment. It will bring stability to the market, particularly for the Sensex and the Nifty 50. It will bring bullishness in the small-cap and mid-cap space because the Budget is expected to induce the aggregate domestic demand,” said Chokkalingam.
The Nifty 50 has declined 12 per cent from its all-time high of 26,277.35 hit on September 27 last year. On a monthly scale, the index has been down since October. This downtrend in the market has been led by strong foreign capital outflow.
Chokkalingam pointed out the historical trend, which indicates foreign institutional investors (FIIs) tend to offload Indian stocks ahead of the budget and begin buying after the event.
Chokkalingam underscored that the budget has focused on fiscal prudence so far. Now, it is time to focus on lifting the disposable and aggregate demand in the system.
He pointed out that many sectors have single-digit growth. So, to lift disposable income, Chokkalingam expects the Budget to provide direct tax concessions because we have been successful in GST on the expenditure side.
“This is the time for the government to give some concession to the middle class on the income side and thereby lift the aggregate demand. If that happens, the market will cheer it,” Chokkalingam said.
Small-caps to outperform in Q4FY25
Chokkalingam believes despite the heightened selloff, small-caps will outperform large-caps in the current quarter. Okay.
“Small-caps will outperform because of a strong influx of retail investors. New investors are still pouring into the market at the rate of seven to eight lakh per week. Moreover, while the Sensex and the Nifty 50 stocks have a problem of liquidity flow syndrome, small-caps in India still offer a lot of growth stories, value-unlocking stories, deep values, a lot of investment holdings, and acquisition possibilities. A lot of opportunities are there in this wide universe of these 4,000 stocks,” said Chokkalingam.
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