Will the Union Budget rejuvenate the bulls?

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This week witnessed a sharp correction in domestic bourses while the global peers followed. The abrupt fall coincided with the monthly expiry which acted as a double whammy leading to a sharp bruise in the highly run-up stock prices. In fact, it is the weaker bets that have moved out of the markets before the high volatility on Budget Day.

A bold budget might rejuvenate the benchmark indices and keep the exuberance going or if the Budget fails to steer or out-beat expectations, then the bruises will deepen given that the market is low on liquidity. Furthermore, if we look at a larger picture, the market is resting at the top end of its valuation metrics in the short term and a corrective phase is likely to continue either by time or price. Infact, this correction might stay for a little longer than what the street might expect.

Looking at the week, the much-awaited vehicle scrappage policy was approved by the Ministry of Road Transport and Highways. While the auto players expected this policy to cover a wider spectrum of vehicles it only caters to Government vehicles older than 15 years, which disappointed the industry bulls and crushed their hopes of a demand revival mostly for the torpid CVs. Such a negative surprise could also be one of the reasons markets corrected this week which hints at a limited inclination in terms of fiscal measures in the Govt’s kitty at the moment. This week all eyes would be on the Budget whose central theme could revolve around improving domestic consumption and reviving growth and recovery in our economy. Investors are advised to selectively buy at lower levels and not take rash knee-jerk news based decisions.

Event of the week

The Fed Chairman left its key overnight interest rate near-zero levels in the US and made no change to the monthly bond purchases of at least $80 billion in Treasury bonds and $40 billion in mortgage-backed securities. As the battle against coronavirus continued, he guaranteed to keep the monetary tap wide open to revive the ailing economy. As an aftermath of all the power pack measures, inflationary tendencies have started kicking in into the economy and will go a long way which cannot be ignored. Sooner or later this will drive prices of risky asset classes namely equity, commodities and real assets higher. As a result, this may also lead to a weakening of the dollar which may hurt the developed economies and increase inflows into the developing economies.

Technical outlook

Nifty50 index posted a big bearish candle after a long period, in fact, this week witnessed meaningful selling on a closing basis after a total of twelve weeks. As markets remain 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 going ahead. All sectoral indices closed negative and Nifty IT, Energy and Realty remained the top losers. A sustained move below 13900 will confirm the bearish scenario as immediate support and resistance now lies at 13700 and 13900 respectively. Traders should stay on the sidelines as the Budget Day could witness massive volatility and random knee-jerk reactions.

Expectations for the week

The coming week could witness the Budget fever running high as it keeps markets on its toes. With all the speculation such as a one lakh crore rupee national bank for infrastructure financing doing the rounds, there is a lot of presumption and assumption. Ultimately the question remains – will the government contribute more towards infrastructure spending and do long term capex in order to revive the slouching growth or will it just create noise around growth by simply tweaking fiscal policies? Markets will be extremely disheartened if the government chooses the latter. But if the former is chosen, markets may climb near its previous highs. Investors are suggested to cherry-pick fundamentally sound companies at lower levels and not decide basis one day of volatility or craziness. Nifty50 closed the week at 13634.6, down by 5.13%.

(The author is a senior research analyst at Samco Securities. The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of Money9.com.).