The benchmark indices are trading close to their lifetime highs ahead of the Budget but a breakout leading them to cross those highs on July 5 may be a tough task. Last 10 years data suggests market action on the Budget Day remains fairly muted as far as closing is concerned.
According to a report by ICICI Securities, bulls took control of the market only in five instances in the last 10 years; even then the gains were confined to 1 percent.
Bears, though have dominated D-Street in just four out of the last 10 years on the Budget Day, they have been capable in making a relatively deeper cut. Bears cut the benchmark indices by 1-3 percent in those years.
Applying the above data to July 2 closing at 11,911, on a closing basis Nifty could at best reclaim 12,000 on the upside but can plunge up to 11,500. However, intraday, due to high volatility it could inch closer to its life high which is at 12,103.
In the last few days, riding on the hopes of a pro-growth budget, the indices have crept higher.
“Stock prices are currently building-in reasonable expectations from the government in terms of delivering a pro-growth budget that would have a positive impact on aggregate demand while not stretching fiscal prudence too far,” ICICI Securities said in a note. “Any disappointment on this front could be a dampener for stocks in the near term.”
In the recent period, Nifty has managed to climb despite reports of weakening economic growth, delayed monsoons, rebound in crude oil and premium valuations. Any disappointment on July 5 could lead to a knee-jerk reaction but experts say that should be bought.
D-Street is highly interested in the fiscal government's fiscal maths and experts feel that Nirmala Sitharaman should be able to hold the deficit at 3.4 percent of the GDP for FY20, but any material slippage from that figure could lead to some selling.
“I expect the government to reiterate its interim budget fiscal deficit target of 3.4 percent of GDP for FY20, however, there could be scope for fiscal expansion of few points to support growth,” Sanjeev Hota, Head of Research, Sharekhan told Moneycontrol.
“Government will walk a tight rope and balance both fiscal maths and growth revival. However, a favourable outcome from the Bimal Jalan Committee report on RBI’s capital transfer could help to negate the tax gaps,” he said.
Where is the smart money moving?
The budget speech is expected to highlight measures on refinancing for NBFCs including housing finance companies, capital infusion for PSU banks, fiscal incentive to boost demand in the housing sector, etc.
Analysts advise investors to remain with
economy-linked stocks and especially where the valuations are attractive and earnings visibility is high.
“Market continues to remain volatile in the run-up to the
Union Budget and because of mixed cues from the global market. We continue to see opportunities in private banks including corporate lending banks, specialty chemicals and infra space,” Sanjeev Hota, Head of Research, Sharekhan told Moneycontrol.
“We are selectively positive in construction, cement, industrials, NBFCs space. Also, valuations in midcaps have turned supportive and, in fact, attractive in certain sectors or pockets of stocks,” he said.
Investors should be systematic in approach in the next 2-3 months to buy quality midcaps and also use market volatility to their advantage.
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