Budget sentiments over, market’s focus now shifts to RBI MPC meet on Feb 7

New Delhi: The market is expected to digest the budget announcements and shift its focus back to earnings and the forthcoming RBI monetary policy committee (MPC) meeting slated on February 7, according to a report on Monday.

The MPC may go for a 25bps rate cut to further ease the liquidity in the market, according to earlier predictions. The RBI’s MPC meeting will decide key interest rates, the Cash Reserve Ratio (CRR), and the Reverse Repo Rate. This will be the first policy decision under the new RBI Governor Sanjay Malhotra, and will be more crucial for market sentiment.

According to the report by Motilal Oswal Financial Services Ltd. (MOFSL), the Union Budget 2025-26 marks a shift in focus from capital expenditure (capex) to consumption and savings, while still prioritising fiscal deficit consolidation.

In a marked departure from previous years, the Budget chose to stimulate consumption and savings rather than focus only on capex. However, it continued to stay focused on fiscal consolidation.

The Budget has shifted its fiscal stance towards stimulating consumption, moving away from a long-standing focus on capex. This is in response to a backdrop of consumption weakness and soft sentiments in the economy.

Finance Minister Nirmala Sitharaman has demonstrated flexibility in adjusting the fiscal stance to boost consumption without resorting to populist measures, said the report.

The Budget also maintains fiscal discipline, with the fiscal deficit for FY26 pegged at 4.4 per cent, which is 10 basis points lower than the glide path requirement.

This is expected to benefit the bond market, strengthen India’s position with sovereign rating agencies, and make room for monetary accommodation, potentially allowing the RBI to cut rates.

Subsidies have been kept flat for the third consecutive year, reducing to 8 per cent of total expenditure in FY26E from 14 per cent in FY23.

The government also demonstrated a focus on ease of doing business by placing greater trust in self-regulation/self-assessment, promising to lighten income tax provisions, and reducing compliance burdens across various laws.

The market is expected to digest the budget announcements and shift its focus back to earnings and the forthcoming RBI monetary policy committee (MPC) meeting slated on February 7.

Earnings growth expectations have been moderated, with the Nifty PAT expected to grow 5 per cent/16 per cent for FY25/FY26. Large-caps are preferred over mid-caps and small-caps, with Nifty trading at 19.9 times on a one-year forward basis, while Nifty Mid-cap and Small-cap are at premiums.

–IANS