Hold your horses. Budget can turn tide either way

The domestic equity market witnessed the much-awaited correction during the week gone by, with Nifty taking the lead as its global peers too tanked. The correction coincided with the monthly expiry of futures and options contracts, which acted as a double whammy, leading to bruises in the elevated stock prices.

In all likelihood, timid hands would have already moved out before the big Budget Day.

As the market is light now, a blockbuster Budget might re-ignite the animal spirits on the bourses and revive the buoyancy. However, if the Budget isn’t well received by D-Street, then the bruises will also be sharp, as volumes are currently low due tough margin requirements.

Zooming out, it is quite likely that the market as a whole is at the top end of its valuation metrics for the short term, and therefore, the current corrective phase is likely to continue either by time or price for a little longer than what the Street might expect, in spite of the Budget buoyancy, if any, that may arise.

Moving on, the much-awaited vehicle scrappage policy has finally been approved by the Ministry of Road Transport and Highways. However, the approval brought with itself a negative surprise ahead of the Budget, since it will be applicable only to government vehicles older than 15 years, which disappointed the industry bulls who had been eagerly waiting for a demand revival for commercial vehicles due to this policy largely. This could also be one of the reasons for the correction in the market, suggesting that the government may have limited scope to boost the economy through fiscal measures.

All eyes will, therefore, be on the nitty-gritty of the Budget, wherein a boost in domestic consumption could be the central theme and the top priority to put India back on its path to growth and recovery.

Event of the Week

Declaring that the battle against coronavirus isn’t over, US Fed Chairman Jerome Powell pledged to keep the monetary valve wide open to aid the pandemic-stricken economy. Leaving its key overnight interest rate near zero, he made no change to the monthly bond purchases at about $80 billion in Treasury bonds and $40 billion in mortgage-backed securities.

With the flush of liquidity being injected in the system, inflationary tendencies are creeping in and will accelerate in future, which shouldn’t be ignored, as it would ultimately drive prices of risky asset classes such as equity, commodities and real assets higher. As a consequence, it may lead to weakening of the dollar, which would hurt the developed economies and improve inflows into the developing markets.

Technical Outlook

Nifty50 formed a big bearish candle after a long period. In fact, the week gone by saw meaningful selling on a closing basis after some 12 weeks. As the market remains deviated from the mean a little longer than usual, we may see a meaningful dip and a time correction or both in the short term. All sectoral indices closed in the negative, with Nifty IT, Energy and Realty being the top losers.

A sustained move in Nifty below 13,900 level will confirm the bearish scenario, as immediate support and resistance levels now lie at 13,700 and 13,900 levels, respectively. Traders should stay on the sidelines, as the Budget Day could trigger massive volatility and random knee-jerk reactions.


Expectations for the Week

The market is expected to remain volatile in the coming week due to various rumours doing the rounds; one of them being a Rs 1 lakh crore national bank for infrastructure financing. However, there are way too many assumptions and presumptions on the Budget, and eventually the question is whether the government can willingly contribute in terms of infrastructure spending and long-term capex to revive the slouching growth or it will just create some noise around growth by tweaking the fiscal policies.

Markets would be deeply disappointed if the government chooses to do the latter. But if it opts for the former, there could be cheers and the bourses could march to the recent highs. Investors are, therefore, advised to selectively buy at lower levels and not take rash, news-based decisions

Nifty50 closed the week at 13,634, down by 5.13 per cent.

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