Nervousness in the market is unlikely to end anytime soon. The sentiment has turned bad quickly and the Budget has failed to pep up investors’ confidence, as there was no clear direction from it.

The market is likely to drift lower this week, particularly the mid- and small-cap space may come under renewed pressure.

According to global financial major UBS, following Finance Minister P. Chidambaram’s meetings with investors across the globe in January, the financial markets were hopeful of a strong pro-growth message and fiscal consolidation signals in the Budget.

“Disappointment came on both counts. The pro-growth message was diluted by sharp cuts in planned expenditure in FY-13. The attainability of a 4.8 per cent fiscal deficit looks suspect – though more achievable than previous years’ targets,” it said and added “in summary, we see no explicit direction to the Budget and we are back to considering fundamental drivers and global cues”.

But the status-quo Budget helped to retain rating agency S&P’s confidence in Indian economy as it did not change its stance. S&P said: “The ratings on India continue to reflect the country's favourable long-term growth prospects, moderately deep capital markets, and a high foreign exchange reserves.”

However, the rating agency cautioned that the country’s large fiscal deficits and debt, and its lower middle-income economy constrain its ratings. It said: “further developments in India's economic growth prospects, its external position, fiscal reforms (including subsidies and GST), and political climate will determine the medium-term trajectory of the sovereign ratings on India.”

Foreign institutional investors will continue to pump in money as long as US Fed adopts easy monetary policy. Stock markets of developing countries including ours witnessed mild correction recently after some members of the US Federal Reserve raised concern over the easy liquidity programme, which they felt could disrupt the normal functioning of markets.

However, Simon Potter, who is responsible for running the quantitative easing program, said the Federal Reserve's massive asset purchases have, so far, not disrupted markets as some had feared and bonds remain readily available.

Potter, head of the New York Fed’s open market operations division, said: “purchases of both Treasury securities and MBS have gone smoothly so far, and market liquidity seems to be holding up well.”

Besides, India’s stance will also set the trend for FII inflow. The Finance Bill shook investors’ confidence as it said that tax residency certificate needed to claim tax benefits is “necessary but not sufficient”.

The Finance Ministry, however, immediately assured investors that foreign institutional investors from Mauritius, for the time being, will continue to get all the existing tax benefits.

FIIs were net buyers to the tune of Rs 45,223 crore or $8.4 billion so far in 2013.

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