Budget-day selloff dents sentiment, but Goldman Sachs remains constructive on Indian stock market — Here's why

After experiencing one of the worst intraday crashes in the last six years on a budget day, the Indian stock market remained range-bound during Monday’s session, February 2, with the Nifty 50 and Sensex trading flat as of 11:30 am.

Investors had hoped the Union Budget would provide a boost to the Indian stock market, as it remained volatile since the start of the year. Instead, a hike in securities transaction tax (STT), record government borrowing plans, and limited measures to attract overseas investors to Asia’s third-largest economy spooked sentiment, leaving a 2% dent in the Nifty 50 and an even steeper 2.24% fall in the Sensex.

Yesterday’s rout also pushed the Nifty 50 to its lowest level in four months and marked a 6% drop from its January peak of 26,373. Over the past 25 years, the Nifty 50 has closed with losses of more than 2% on just four occasions on budget day, with 2009 recording the steepest fall of 5.8%, Mint reported earlier.

These measures overshadowed the higher capex allocation of 3.1% of GDP, the 10 basis-point reduction in the fiscal deficit to 4.3% for FY27, and the government’s commitment to keep central government public debt (as a share of GDP) on a declining path toward 50% (±1%) by FY31, from a target of 55.6% in FY27.

Although investors reacted negatively by dumping stocks, analysts have largely remained positive on the long-term growth story, citing an earnings recovery and the lagged benefits of recent consumption tax cuts.

Global brokerage firm Goldman Sachs, in its latest report, said it continues to maintain a positive outlook on domestic equities. The brokerage noted that the softer fiscal drag in the budget, along with steady capex spending, was largely in line with its expectations and supports its fundamentally constructive view on Indian equities, driven by an earnings growth recovery to the mid-teens.

However, Goldman Sachs cautioned that near-term risks to valuations persist, given already weak foreign investor sentiment, which has been further catalysed by the unexpected timing of the securities transaction tax (STT) hikes.

Policymakers focused on the long game

Goldman Sachs underscored that policymakers continue to prioritise macro and market resilience over near-term growth spurts. This is evident in steady fiscal consolidation and the timing of the securities transaction tax (STT) hike, which is likely aimed at curbing speculation in the derivatives market, even at the cost of near-term equity upside.

The brokerage added that the policy thrust remains focused on strengthening public-sector balance sheets to support durable, less volatile growth.

Consumption revival, defense-led capex to support high-teen returns

Across sectors, while no new consumption stimulus was announced, the brokerage believes a consumption revival could be sustained through the lagged effects of policy easing from last year.

On the capex front, the prioritisation of defence spending reinforces Goldman’s overweight stance on the sector. Over the medium term, it sees rising opportunities in areas of strategic importance and new infrastructure, including digital infrastructure and data centres, biotechnology, transportation corridors, nuclear power, and critical minerals.

The brokerage retained its constructive view on Indian equities and expects high-teen full-year returns, driven by an underlying earnings recovery.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.