The stock market will take a narrow path in the early part of the week before entering into volatile zone ahead of crucial events. In this action-packed week, the Railway Budget, Economic Survey and the Union Budget will be presented which will keep traders and investors busy. Besides, settlement in the derivative segment on NSE will add to the volatility.
Though investors do not expect much from the Union Budget, sentiments remained cautious amidst mixed signals from the global markets.
Markets are likely to follow the macro level measures, rather than sector-specific policy changes, which may be limited anyway, said UBS on Budget expectation.
Any disappointment in the Budget pronouncements could impact the benchmarks adversely. Even if the Budget surprises marketmen and economists positively, analysts are not betting a big rally for the stock market.
According to a survey conducted by Bank of America-Merrill Lynch, investors are generally neutral to overweight on India. “Investors feel that while reforms and rate cuts will be positive for the market, the sharp rally in the market means that lot of the good news is priced in. This is in line with our view that the re-rating in markets is behind us and the market returns would mirror earnings growth,” the foreign fund house, which conducted the survey between February 18 and 20, said.
According to Emkay Global Financial Services, several rounds of quantitative easing by Europe, the US and Japan since mid-2012 and gradual rise in velocity of money in the US and Euro areas have expanded global excess liquidity to mid-2009 levels. Hence, notwithstanding the lack of economic growth revival, market risk perception has compressed dramatically and stimulated capital flows into emerging markets, including India. Domestic announcements have been riding on the global liquidity spill over.
However, the recent US Federal Reserve minutes sparked uncertainty about asset purchase programmes, with some raising concern about the impact of easy monetary policy. If there is any attempt by the US Fed to reverse or reduce the monetary stimulus, then the global rally in risky assets, including India will peter out.
As Emkay puts it: “Conversely, if the market is only pricing in future growth, the current valuations are pricing in very strong rebound; for instance, IIP growth rebounding to 8-10 per cent in FY-14E, far stronger than 0.8 per cent in FY13 and our FY-14E expectation of 4 per cent. The inflexion point from earning downgrade to upgrade cycle is still away, with consensus still expecting a 15 per cent growth for FY-14E.”
Emkay projected the BSE Sensex’s base case at 18,500 with a range of 19,800-17,000.