Budget expectations to drive markets

Highlights

The Sensex has posted its second consecutive weekly gain to move closer to 26K-mark on the eve of Christmas. However, the gain this week was smaller at 319 points as compared with

The Sensex has posted its second consecutive weekly gain to move closer to 26K-mark on the eve of Christmas. However, the gain this week was smaller at 319 points as compared with 474 points notched in the previous week due mainly to lacklustre participation from traders and investors in the wake of the truncated week and caution ahead of the expiry of derivative contracts next week, as also to holiday mood amongst the managers of foreign institutional investors (FIIs).

The government's failure in getting the crucial GST and other reforms bills cleared in the upper house of the now concluded winter session of the Parliament, was yet another mood damper.

Sensex closed previous week at 25519 with a net gain of 474 points, opened the week under review a shade lower at 25425 and slumped to a low of 25414 in initial trades.

With the sustained uproar in the then on-going parliament session, by the chief opposition party, the Congress, on varied excuses in the upper house, it had already become evident that the winter session would also not be able to see the crucial bills like GST and others, go through.

However, the markets had already discounted this possibility in prices of stocks when they had plunged in the preceding few weeks and therefore when the winter session closed on Wednesday without passing crucial bills, did not cause any harm to the markets which, instead, registered the highest gain of 260 points of the week on Wednesday, the last day of the parliament session, itself.

With the prolonged suspense of whether the Fed Reserve would hike interest rate or not getting over when the US's Apex bank ending the near zero rate regime by hiking interest rate by 25 basis points in mid-December, the FIIs turned into a net buyers of Indian equities, though in small quantities. This had helped the market participants to remain positive and buy shares throughout the last week.

Thus the last couple of weeks has been bullish weeks for the markets and so is going to be the new week, opening up, with the general trend curving upwards, the bear operators would prefer to cover their short positions in forward group equities in view of expiry of derivative contracts due on Thursday.

Besides, with the uncertainties over the long pending issue of interest rate hike by the US Fed getting over, the parent bodies of the FIIs that are operating in India would make fresh allocations of funds to be invested in Indian stocks, in January 2016.

Since with the long-term growth story remaining intact and government's efforts gradually succeed to improve the economy, the Indian stocks are expected to continue to attract more and more FIIs to invest.

However, the near-term trend is not likely to be very exciting as the next triggers for the markets would be in the form of the Q3 corporate results and these are not going to be any different than those of the Q2.

Therefore, it would be the expectation over the next Union Budget that could drive the markets up. Since the Finance Minister has got one full year's time before preparing the budget, it could be a different type of budget that might contain provisions to boost the economy and corporate earnings.

Thus, the prospective buyers are suggested to keep their funds protected from getting blocked in shares on hearsay and buy stocks of the companies that prove to be worthy of investment post the Q3 number season.
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