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Does Q1 fiscal deficit data, affect the Indian stock market?

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India is the sixth largest economy in the world estimated to grow at the rate of 7.5% according to International Monetary Fund (IMF) in the current fiscal year 2022-23. The ongoing Russia-Ukraine conflict and slowdown in the major world economy have impacted the growth rate of India. Yet, India’s projected growth is better than that of other world economies like China and Japan and retained the tag of the fastest growing economy.

Recently, the Government of India released the fiscal deficit for the first quarter (Q1) of the April-June period, which is lower than expected which is 21.2% of the full-year target of Rs 16.6 trillion. This is due to higher tax collection and lower spending on subsidies.

The rise in inflation has partially led to higher tax collection, more collection in goods and service tax (GST), and higher corporate tax receipts due to improved economic activities. Whereas, the government has reduced the revenue expenditure on major subsidies including food and fertilizer to Rs 68,000 crore during the April-June period, compared to over Rs 1 lakh crore a year earlier.

Further, the government has cut down the prices of petrol, diesel, and LPG cylinder in Q1 has been a sign of relief to the consumer. Even though this reduces the revenue of the government, there is a 27% rise in GST collection, showing a sign of recovery in the market.

The Government is confident to achieve the 6.4% GDP fiscal deficit target of March 2023 by looking at the current fiscal deficit status, despite economic turmoil across the globe.

India’s eight core sectors (coal, cement, electricity, refinery products, fertilisers, steel, and natural gas industries) growth increased by 12.7% in June against 9.4% in the year-ago period, according to the Ministry of Commerce & Industry.  Despite this the stock market closed at712pts not because of growth rate of eight core sectors but of other factors.

There is a negative and significant correlation between the Q1 fiscal deficit of the government and the stock market. According to experts, when a nation’s budget is in deficit, it will lower stock prices and erode investor confidence, which will eventually reduce the firm’s capacity to obtain financing on favourable terms.

As the deficit grows, future tax obligations, interest rates, and the value of the currency rise, which causes a decline in company profits due to weak domestic and export revenues. Therefore, if sales decline, net earnings also decline, which in turn decreases equity prices.

The short-term variations in the budget deficits are unimportant to investors. In India, both the money supply and inflation have a beneficial long-term and short-term impact on stock prices. In anticipation of a rise in economic activity, the increase in money supply causes an increase in money demand. As predicted profitability increases due to increased economic activity, stock prices rise. As a result, the fiscal deficit harms Indian stock values.

After the release of Q1 data, there was hardly any moment in the stock market, if there were any tax duty cuts or additional expenditures announced then there would have been some influence on the stock market.

The Indian stock market has fallen to 16000 points as a result of the rise in federal interest rates in the US and the expectation of a global recession. Despite the decline, investors were blessed by the Q1 results of major industries. The market has recently gone up due to Q1 earnings from companies including IDFC First Bank, Induslnd Bank, Asian Paints, HCL Technologies, Wipro, NTPC, State Bank of India, Larsen & Toubro, ITC, HDFC Twins, ICICI Bank, and Titan Company.

Here are some Q1 Results influencing the Indian Stock Market

Bank of Baroda’s profits increased by 79.4%, HDFC Bank reported a 19% year-over-year (YoY) rise in standalone net profit to Rs 9,195.99 crore for the quarter, and ICICI Bank reported a 50% year-over-year (YoY) rise in profit after tax (PAT) at Rs 6,905 crore compared with Rs 4,616 crore in the same quarter last year, keeping Nifty Bank in the black. Q1 sales numbers and net profit.

TVS Motors reported profits of Rs 321 crore, up from Rs 53 crore in the first quarter of FY22, a four-fold increase.

Maruti Suzuki reported a 129.76 per cent year-on-year (YoY) surge in net profit at Rs 1,012.80 crore in the June quarter compared with Rs 440.80 crore in the same quarter last year, lifted the auto stocks in the stock market.

The stocks like Tata Steel reported a consolidated net profit at Rs 7,765 crore for the quarter ended June, down 12.8 per cent over the year-ago period, resulted in fall of stock market.

Additionally, IT firms like Tech Mahindra recorded a 16.4% year-over-year (YoY) decline in their combined net profit, coming in at 1,132 billion versus 1,353.20 billion in the same quarter previous year. In the first quarter, Infosys reported consolidated revenue of Rs 34,470 crore, exceeding the expert forecast of Rs 34,150 crore. The Indian stock market was negatively impacted by Infosys, which managed to meet Street predictions in terms of sales but disappointed in PAT and margins.