Union Budget done, what next? Top triggers for markets this week

Indian markets ended January negatively after falling 3% on key benchmark indices. Multiple factors, including strong FII selling, muted earnings, trade war threats, and more, largely influenced the markets. However, the Union Budget remained one of the major triggers for the markets. According to market experts, the budget delivered a significant boost to the ailing consumption economy by reducing the tax burden on consumers.

Ahead of the budget, markets recovered sharply from the lower levels, giving some respite to market participants. The NIFTY50 and SENSEX recovered 3% and the broader indices posted a 5% recovery from the lower levels. Despite the sharp recovery from lower levels, Indian markets closed the month with 3% losses and the second most declining markets in the world.

RBI monetary policy

The RBI will hold its bi-monthly policy on 5-7 February. This will be the first bi-monthly policy under the new RBI governor. Market participants and experts expect a rate cut in the coming policy meeting to support the growth while balancing inflation headwinds. Earlier, RBI announced three key measures to improve the liquidity situation in the economy via open market operations of ₹60,000 crores,₹50,000 of variable repo auctions and currency swap purchases.

Mixed global cues

The global markets ended the week largely in red, with US and Asian markets losing nearly 1%. The US markets last week reacted to multiple factors, such as a threat to Chinese startup DeepSeek's dominance of big tech and tariff announcements. Markets globally are expected to react to developments between US and Canada, Mexico and China.

Tariff war concerns

The Trump administration officially announced tariffs on Mexico, Canada, and China on Saturday. Trump announced 25% tariffs on Canada and Mexico and a 10% tariff on China against concerns over illegal immigration and drug trafficking in the US. In response to the tariffs, Canada announced 25% tariffs on $155 billion worth of goods imported from the US. Markets will likely react to the US tariff war threat and may trade cautiously.

FII and DII Data

The Foreign institutional investors sold nearly ₹87,000 crore in the secondary markets in January 2025 and hold significant short positions in the derivatives market. Despite a strong market recovery, FIIs continue to hold strong short positions.

Consumer-oriented stocks in focus

Shares from consumer durables, FMCG and auto, and realty stocks will remain focused after key budget announcements likely boost investor sentiment for the sectors. The extension of the tax exemption limit from ₹7 lakh to ₹12 lakh is expected to put ₹1 lakh crore in the hands of consumers, boosting the consumption demand.