After 5% fall in 4 days, will Nifty stage a sharp rebound before Budget?

MUMBAI: The Nifty50 and BSE Sensex ended lower for the fourth consecutive day today and as a result, have come off more than 5 per cent from their lifetime highs hit last week. However, this is as far as the correction may go as analysts expect benchmarks to stage a sharp rebound in the days ahead of the Union Budget on Monday.

“This decline of Nifty of around 800 points from the top ought to be seen as a healthy correction and an interim consolidation phase before the markets begin the next leg of movement,” said Pankaj Pandey, head of research at ICICI Direct.

Since April, the equity market has shown good capacity to bounce back strongly after every sustained period of decline, helped likely by the abundance of liquidity and several investors waiting on the sidelines to “buy-the-dip”.

On an average, the Nifty 50index has bounced back 15 per cent after correcting for three or more days over the past 10 months, reflecting the strong uptrend that the Indian equity market is currently part of. Shrikant Chouhan of Kotak Securities said that the index has critically taken support above 13,950 today and therefore, may see a strong rebound towards 14,400 or 14,500 levels in the run up to the Budget.

The Nifty50 index ended 1.9 per cent or 271.40 points lower at 13,967.50, while the BSE-Sensex closed at 48,347.59, down 1.9 per cent or 937.66 points. Both the benchmarks erased their gains for the year today.

The minor correction in the stock market seen over the past few days has largely been driven by profit booking by some investors on concerns over the stretched valuation, the Union Budget, and easing of the strong uptrend in global markets.

Globally, risk sentiment has taken a breather in the past few sessions as investors wait for the new Joe Biden administration to clear its first hurdle of getting the $1.9 trillion stimulus package through a divided US Senate. Market participants believe that the passage of the bill will improve investor confidence that the Biden administration will not be thwarted in its push for large fiscal stimulus that saw the global markets roar to record highs.

Some investors had also raised concerns that the Union Budget may not deliver on the Street’s lofty expectations given buzz around a possible Covid-19 cess on corporate and wealthy individuals and the possibility of some increase in market-related taxes like long-term capital gains and transaction tax.

That said, investors remain bullish on the prospects of the equity market in 2021 as they are counting on the economy to experience a sharp recovery helped by the roll out of the Covid-19 vaccines and falling infection cases. At the same time, analysts have also projected corporate earnings to grow over 30 per cent in the next financial year.

At the same time, the main driving force behind the bull market, namely, the liquidity provided by the global central banks will remain intact with no expectations of any tapering in the near future. “Somewhere there will be a point where the liquidity, which is sitting on the sidelines domestically, would find its value accretive to come in,” independent market expert Ajay Bagga told ETNow.

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