Budget uncertainty grows

As the day draws near for Finance Minister Arun Jaitley to present the financial plans of the country, expectations are high. Prime Minister Narendra Modi will no doubt ensure that he too has a say in the matter

It was a great week at the markets and even though the Delhi election results were a whitewash for all parties other than AAP, it saw the markets recovering post the declaration on expected lines.

Arun Jaitley has his work cut out with the presentation of the Union Budget. Pic/PTI
Arun Jaitley has his work cut out with the presentation of the Union Budget. Pic/PTI

There appears to be no competition to the new party and the new CM Arvind Kejriwal has his task cut out having promised people free or subsidised electricity and water.

Any deviation from the promises will bring a backlash from the people who voted in large numbers for him. Winning 67 of the 70 seats in the assembly must have created many records.

Indice progress
Coming back to the markets. Sensex gained 377.02 points or 1.31 per cent to close at 29,094.93 points while Nifty gained 144.45 points or 1.67 per cent to close at 8,805.50 points. Broader indices gained more with BSE100, BSE200 and BSE500 gaining 1.84 per cent, 1.99 per cent and 2.03 per cent, respectively.

BSEMIDCAP gained 2.39 per cent whilst BSESMALLCAP gained 2.03 per cent. In sectoral indices, the top gainer was BSEHEALTHCARE up 4.19 per cent followed by BSEPOWER 3.59 per cent and BSEBANEX 3.03 per cent. There were just two losers with BSEREALTY down 1.44 per cent and BSEOIL&GAS 0.47 per cent.

In individual stocks, the top gainer was Dr Reddy up 9.45 per cent followed by HPCL (Hind Petro) up 7.42 per cent, Lupin 7.08 per cent and SBI 5.75 per cent. In other stocks, Wockhardt gained a staggering 23.16 per cent. The losers were led by Indian Oil down 5.07 per cent, Bharti Tele 3.39 per cent, Cairn India 3.26 per cent and ONGC 3.15 per cent.

FIIs were sellers for the last week of Rs 1,755 crores with them being buyers for the first time after about two weeks on Friday. Domestic institutions were buyers of equity worth Rs 2,095 crores. The Indian rupee weakened to close at R 62.19, losing 50 paisa or 0.81 per cent.

Oil prices have risen after their sharp fall and crude oil price in the US has touched the 60 dollar mark. Whether this is a technical rise or a reversal only time will tell.

Sharp reversals
Talking of reversals our equity markets saw a very sharp reversal, Tuesday onwards on expected lines. The Sensex after falling 1,799 points from the high of 29,844 made on January 30 to the low of 28,044 on February 10, regained 1,049 points on Friday to close at 29,095 points. The recovery was of 1,051 points or 58.4 per cent.

The fall lasted eight days and this is the fourth day of recovery. Similar levels on Nifty were a fall of 526 points from 8,996 to 8,470, a fall of 526 points and the recovery of 335 points or 63.6 per cent to 8,805 points. This recovery is expected to continue in this week and would attempt to retrace fully in the run up to the Budget.

Dow Jones closed at 18,019.35 points a gain of 195 points or 1.09 per cent. IIP numbers were disappointing and here again the base was changed like GDP. With the base year changing, the size of the economy has increased and therefore managing the fiscal deficit would be easier in the targeted 4.1 per cent.

The trade deficit has reduced significantly and fallen to its lowest level on account of falling crude prices. The trade deficit for January 2015 has shrunk to 9.43 billion dollars and is down 44 per cent compared to December 2014. Inflation is marginally up but not cause for concern and here again the base year has changed.

Budget views
Whether we will have trading in the markets on Budget Day which is a Saturday remains uncertain. The world would be watching how the Narendra Modi government fares at the bourses post the announcement of the first full Budget and ‘Make in India’ campaign.

With the possibility of the markets being shut, we all would probably have to wait for two days post the Budget to gauge the mood on Monday, March 2. This week will see markets continue to gain further after the cease fire between Ukraine and Russia has been put into force.

Our markets will attempt to test the previous high from where they began their fall on January 30, just under 30,000 on the Sensex and 9,000 on the Nifty. Whether they cross the same or not only time will tell, but the clear thing is that there would be plenty of expectation on the Budget front.

The FM is widely expected to announce some definite initiatives which would see the investment cycle kicking off and some highly negative terms like ‘GAAR’ and retrospective tax being completely done away with.

It is also believed that SEZs which have not taken off because of incidence of high MAT will be given a lease of life and kick off investments. Trade the market on the long side in the four days of trading this week which has a holiday on Tuesday.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website http://ak57.in

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions.

Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.

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