Market trading cautiously ahead of budget, Fed meet

The equity market seems to be treading cautiously ahead of the budget as investors are unwilling to take huge positions fearing volatility before key events.

Benchmark indices Sensex and Nifty on Wednesday ended flat as cautious investors refrained from taking any positions in view of upcoming key events like futures & options expiry, US Fed policy outcome and the Union interim budget, analysts said.

There is no major build up in the derivative market before the budget as sentiments are now driven more on political grounds rather than earnings or budget proposals.

Even though third quarter results of more than 70 per cent of the Indian companies are relatively better or above expectations, the Nifty-50 and the Nifty Bank indices have corrected during the last 10-12 trading sessions by between 3.25 per cent and 3.60 per cent, as political worries outweighs the good corporate numbers.

"This is a crucial period for the government before it completely gets into an election mode. Ahead of the elections, we may see the budget announcing some sort of farm loan waiver, rural stimulus and a rise in minimum support prices (MSP). The budget will continue to be an important tool for the government to communicate its economic as well as social agenda and some excitement around it is still warranted. Consumption and rural plays should see an increase in allocation from the budget perspective. We do not believe that investment is likely to see any renewed push in this budget. Consumption is likely to be the focus area," says Naveen Kulkarni, head of research, Reliance Securities.

"We expect budget to be positive for the market,” he said.

The market is worried about the prospects of a populist budget, with farm loan subsidies, lower income tax slabs and reduced corporate tax for small and medium-scale enterprises, putting an additional burden on the fisc.

Sectors like construction, infrastructure, real estate and housing are likely to get special attention in the 2019 interim budget, going by the trend of the last few years.

“The budget has always been an event when we expect volatility to expand with the perception to safeguard the portfolio and hedge the overall risk in the market,” said Mustafa Nadeem, CEO, Epic Research.

 “The market is likely to be in a range of 11,200 to 10,700 on the downside. So given the days left to budget, we expect the market to test 11,100-11,200 while only a decisive break beyond that we may see a next move since that would call in for a much aggressive rally that may be supported by short covering as well. On the downside, support is established at 10,700-10,650. These are important for this move and a breach of these levels will see a downward move to take the Index to lower levels of 10,200–10,250,” Nadeem added.

“Markets are likely to see an expanded move though study suggests we may see a move higher that can take the market to higher levels of 11,100-11,150.  We expect a halt at levels of 11,100-11,200 since it’s a very strong resistance placed there. Historically the market has reacted to budget in a positive.“

Post-Budget, some profit booking can be expected, as the rebalancing of the portfolio will be there,” analysts said.

“Markets are expected to remain highly volatile in the near-term on account of the Union Budget 2019. In the recent past, Nifty50 tried to cross the 11,000 mark two times but has failed to sustain above the same. This has resulted in some selling pressure. The broader range is seen at 10,400-11,000,” said Sahaj Agrawal, Kotak Securities.