Sunday, March 1, 2015

Budget out of the way: What next

The Union Budget was presented yesterday and it was a good budget in the sense there were no major populist announcements. The markets rallied on the back of the budget especially the Banking Stocks.

1. For the week, the markets were up 0.8 pc and for the month 1.1 pc. The month of February has gone by and markets usually make a top sometime in March if not February. Prudence would therefore suggest to book profits if the markets rally from here.

2. Since there are no unpleasant surprises in the budget, one can expect the markets to rally a further 400-500 points from here.

3. The Budget was good in the sense, it did not give away free gifts while at the same reducing corporate taxes from 30 pc to 25 pc.

4. The FIIs bought 6700 crores worth of shares in Feb and all this came in the last week of Feb. This can mean the markets can go higher from here.

5. The fuel price hike makes no rational sense. While bringing down the prices, the delay in reduction, excuses trotted out were that 6 weeks old inventory has been to be exhausted first. While increasing the prices, the same rationale is not used.

6. The hike in Service tax will lead to lesser income in the pockets of consumers.

All in all it was a neutral budget with no big bang announcements as well. The current rally can go on for 1-2 weeks more but there is no new trigger to sustain it. Also, how the Parliament session goes can influence the movements of the Nifty.

Around March 15th or so, liquidity concerns for Advance Tax payments can also arise. At such times the markets are flat or negative.

The early part of next week should see some upward movement based on positive feedback about the Budget. Post that, there are no triggers to take the markets up higher.

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