The Hindu Business Line : Budget expectations to decide market moves this week

This week the trend of buying rush at declines is likely to continue. Upward or downward movements of the benchmark index would, however, be restricted by a range of 1000 points.

For the broader indices, the range also got narrowed down as valuations moved up substantially.

On the wings of expectations, fresh investments have been following the sectors foreseen to receive policy focus and support.

Equities have aggressively been directed by surging investments and shrinking space for incremental value growth. Many investment advisors and fund managers think that the broader market has lesser number of quality pockets for further appreciation of long-term investments.

A section of overseas investors, who has also been active buyer, of late, appears to be sold on Indian recovery story. They expect marked change in the areas of economic growth trajectory, moves towards disinvestment and opening windows for FDI. But, for these investors too, valuations are turning stretched.

The indications before the Budget (the President’s speech last week and the Prime Minister’s expected explanations on the speech this week) are likely to guide the market players’ moves this week.

Considering the forward premiums already added to the valuations, some investors would like to book partial profits. But the law of average would prevail as there are likely to be ready buyers on falling levels.

The fact that there are insignificant shorts in the system suggests that very few are expecting a correction now. A trend of running correction (a decline and recovery or an upsurge and a rebound within the same session) could be the order of the day till the day of Budget announcements.

The proposals for the economy and signals for the corporates would determine the extent of correction depending on how much the market has overshot in terms of expectations.

Fundamentally, the market has gone ahead on growth discounting spree in a large number of stocks. The current premiums on the forward price-earnings ratios are primarily linked to the Budget expectations and not the present corporate fundamentals.

Even if the Budget meets the expectations, a correction is well on the cards as short-term strategies would unleash programmed sell orders. But that may not cause a Sensex correction of more than 15 per cent.

According to market intelligence, the correction may not last long. There are still a large number of investors who are waiting for it, as also for clearer indications on the way forward from the Budget document.

(Responses may be sent to jayanta_mallick@thehindu.co.in)