Budget blues for the markets: Mamata factor spoils the party

The past week has been a hectic week for the Indian markets. Two of the events - The credit policy and the General budget turned out to be non events, and the third event - A bold railway budget was held to ransom by "Mamata didi'. The UPA government seemed to be succumbing to Didi's dadagiri, creating an embarrassing situation of sacking of the railway minister immediately after presentation of the rail budget. The political situation has taken a turn for the worse and it would be futile to expect the govt. to restart the reform agenda. This would be seen as a major negative by the investor community.

 

The markets, as expected, gave a lukewarm response to the budget and the decline post budget is likely to continue for some time. However, the excessive liquidity in the market will act as a deterrent for a sharp decline. From now on, international liquidity and last quarter results of India Inc. would decide the short term course for our markets. The markets are expected to trade in the range of 5000-5600 on the Nifty for the next 2-3 months. However, the markets having made a bear market bottom in December 2011 at 4531 on the Nifty, the long term trend remains up. It is a buy on dip market, and investors are advised to enter the markets around 5000 levels on the Nifty.

 

The Union budget for 2012-13 would be monitored closely by the analysts as far as the fiscal deficit is concerned. It will be interesting to see how the Govt. moves towards reducing a fairly high subsidy burden. The budget proposals are also inflationary in nature in the short term. This would delay the rate cut hopes from RBI. The markets would thus be sceptical in the short term. However, the lack of any negative surprises in the budget bodes well for the markets in the long run.

Election results a blow to UPA: Markets to remain subdued

It is Holi mood on Dalal Street and red colour is splashed all over - on the broker screens/ investor books. The state assembly electoral hustings have dealt a huge blow to the UPA Govt., and have cast serious doubts about its ability to complete its full term. Equity markets, after the initial euphoria, have given a thumbs down to the results. The correction in the markets that was already underway will gain further momentum in the short run. This correction is a blessing in disguise for the investors who are sitting on cash to take entry into the markets at lower levels. As indicated in my last post the worst is over for the markets, and a bottom has been made at the level of 4531 on the Nifty in December 2011. The next downturn is likely to create a higher bottom around 4700-4900 levels on the Nifty. This would lay the foundation of a grand and sustained bull run in our markets, which will unfold in the New samvat 2069 starting on March 23, 2012.

The negative global factors are also playing a negative role in pulling down the markets:

• Greece and some other Euro zone countries are again hogging the limelight, a default seems imminent.
• Escalation of Iran- Israel conflict is keeping crude prices on the boil.
• Rupee has weakened by around 5% and this will add pressure on the fiscal management by the Govt.
• Slowdown fears in China have spooked the global equity markets

In the above circumstances money is likely to move out of risk assets and may move to save havens like US treasury and precious metals. Equity markets have the potential to correct up to 10% from the current levels. But this presents a good opportunity to accumulate blue chips at reasonable levels. The next important triggers for the market would be RBI policy on 14th and Union budget on 16th March. Investors are advised to start putting money in equity markets around 5000 levels on Nifty (16400 on Sensex) to reap rich rewards in the next 12 months.

Wishing you a 'Happy Holi', may the colours of Holi spread happiness in the lives of investors.