Union budget to decide market sentiment

Feb 13, 2012, 10:59 IST | Alex K Mathews

Last week was indeed flat and positive with NIFTY gaining back almost all that it had lost during the first few days

Last week was indeed flat and positive with NIFTY gaining back almost all that it had lost during the first few days. Immense fund flow clubbed with retail participation helped NIFTY to move above 5400, hinting that the markets are entering another bull phase. NIFTY is on a consolidation mode and it is having a base at 5325 and 5250. 

The resistance for the NIFTY will be at 5450 and 5500.  A break below the key support level can bring down the NIFTY towards 5183 and more.

The next major trigger for the market is the Union Budget, which will be tabled on March 16. Many expect that the government may scrap STT, but as they are finding it really difficult to meet their fiscal deficit targets with revenues drying and subsidies cut down, it will be surprising to see if they scrap the STT and it will be even more surprising if they didn't add any more taxes.

As far as revenue is concerned, we don't think the government would be ready for any compromise and they may even recommend strict regulation in the financial field, giving recent scams and money laundering acts that surfaced. In order to bring more liquidity into the system, RBI may use their CRR tool before the mid quarter review in March. Interest rates are expected to come down as inflation has moderated and is falling towards the RBI comfort zone.

On the domestic front, the net direct tax collections between April and January rose 9.28 per cent to Rs 3.46 trillion on account of higher realization of personal income tax and corporate tax.

Tax has grown at a slower pace this fiscal so far, while the personal income tax collection for the same period in the current fiscal was up by 20.43 per cent at Rs 1.38 lakh crore. According to NASSCOM, the Indian IT export revenues are expected to grow between 11 and 14 per cent and domestic revenues will grow between 13 and 16 per cent for FY13 despite the global challenges.

Also it said that the revenues of BPO segment of IT for the year 2011-12 crossed $101 billion mark, which is an achievement.

Manufacturing sector grew at a lower rate of 1.8 per cent in December against 8.7 per cent in the same period last year.

Capital goods contracted 16.5 per cent against 20.2 per cent while mining contracted 3.7 per cent against 5.9 per cent previously.

The RBI and the SEBI is closely observing every issue related to finance.

The Chinese inflation rose to 4.5 per cent against 4.1 per cent. Global markets have remained mostly supportive as far as a deal between the Greek political class and the international lenders is concerned. United States has imposed more sanctions on Iran including its Central Bank to persuade Iran to stop its nuclear projects.

G old looks slightly weak, and it may find support at $1706. If it falls below this level then it may find support at $1680 levels. The major resistance for the gold is at $1738 and $1751. Crude oil is likely to trade in a tight range at $101.12 - $96.65.  Counters like TTK Health, TTK Prestige, SKF India and McLeod Russell are technically very strong and these stocks can continue its upward rally in the near term. The short term technical indicators of the front line stocks are suggesting weakness to continue in the short term, stocks like Bharti, Coal India, HUL, Mahindra and Mahindra and Ranbaxy are the some of the counters are looking weak on charts.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended.
Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

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