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Dalal Street is likely to witness volatile trade this week with a positive bias propelled by buying interest on the part of domestic institutional investors, analysts say.
“As we approach the budget, expectations will get stronger. The stock market is likely to remain bullish although it might take some breather this week,” Unicon Financial Chief Executive G Nagpal said.
Marketmen feel that with foreign investors booking profit for the past two weeks, domestic institutional investors who were waiting on the sidelines would enter the market with fresh money.
“DIIs too would fuel liquidity in the markets as they move to unwind the large stock pile of cash induced by global uncertainty. Now with an increase in global risk appetite and stronger market sentiment, DIIs are waiting in the wings to deploy their cash in the markets,” domestic brokerage firm Religare Hichens Harrison said in its market note.
Besides, analysts said this week would give a direction for the movement in the markets worldwide as there has been no significant gain or loss for over a month now. “This week trading would be volatile with a positive bias, even as there might be some selling pressure at the higher levels. It would be a deciding week for the entire global markets as they would tend to move out of the sideways zone and take a concrete direction,” SMC Global Vice-President Rajesh Jain said. The BSE Sensex gained nearly 243 points in the past week and closed at 14,764.64 points on Friday, while the National Stock Exchange’s Nifty index settled up 62 points at 4,375.50.
“Volatility is likely to continue as investors who have entered the market at the lower levels would book profit now. However, new funds are also waiting in the sidelines to enter at appropriate valuations,” Nagpal said.
Against expectations
“The current rally is going against consensus expectations. We are of the view that liquidity in the markets is likely to keep valuations at current levels going forward,” Religare Hichens Harrison said in the note.
The market will take cues from government initiatives to control fiscal deficit and raising revenues through disinvestment. However, the government will not deliver everything in the coming Budget and markets need to give time to the government to deliver over the medium term,” it added.
Last week, FIIs made a net equity sale of Rs 1,943 crore; however, their net investment in shares is worth Rs 23,233.40 crore so far this year.
FII liquidity will continue the risk in developed markets is driving funds to emerging markets, the note said.
On Friday, the US market was mixed, with the Dow Jones Industrial Average slipping 0.40 per cent to settle at 8,438.39 points and the Standard & Poor’s 500 Index rising 1.36 points to 918.90.
However, the tech-heavy Nasdaq was up 0.47 per cent at 1,838.22 points. The stock market has put up a disappointing show in a month after the Budget announcement seven times in the past 10 years, but analysts have opined that this time the government’s move on policy reforms may provide a positive surprise.
Post-budget movement
An analysis of the market performance one month prior and a month after the Budget announcement in the past 10 years by Morgan Stanley showed that the Bombay Stock Exchange index, Sensex, had been in the positive territory on just three occasions.
“The market may provide a positive surprise since we expect the Finance Minister to deliver a reform-oriented Budget,” the report by Morgan Stanley stated.
Last year, the Sensex had dropped nearly seven per cent a month after the announcement of the Budget on February 29 to 16,300 points from 17,579 points on the Budget day.
Similarly, the years when the market saw a decline a month after the Budget announcement were, 2007( down 0.4 per cent), 2005 (three per cent), 2003 (five per cent), 2002 (2.6 per cent), 2000 (7.5 per cent).
In 2001, the index had plunged the highest by 11.4 per cent a month after the Budget announcement, the data showed.
Despite the history not favouring an upward movement in the market in the month after the Budget announcement, Morgan Stanley’s India strategist Ridham Desai opined that this time history may not necessarily be relevant. The benchmark index had actually surged after budget announcement in 1999, 2004 and 2006.
The index had gained as much as eight per cent in 1999, 7.3 per cent in 2004 and 6.9 per cent in 2006, the data showed. “We are bullish on the Budget as the government is likely to put up an investor friendly announcement. And despite some surprises, the Budget is likely to lift up market sentiment,” Geojit BNP Paribas Financial Services Alex Mathews Research Head said.
In 2006, the Sensex crossed the 11,000 level a month after the financial document was tabled in Parliament from around 10,000 levels on the Budget day. While, in 2004 the index had crossed the 5,000-mark from around 4,800 levels prior to the event, the analysis revealed. Mathews said as the disinvestment programme depends on a positive momentum in the market, the government is unlikely to disturb the growing investor confidence by any drastic steps.
“We think the Budget will provide positive signals, indicating the government is keen to make progress in policy reforms,” the Morgan Stanley report stated.