Bulls roar on D-Street. Pre-Budget rally, short covering or tech pullback?

Markets started the budget week with a bang as the S&P BSE Sensex surged nearly 800 points to 57,975 levels, while the Nifty50 index moved up 237 points to 17,339 levels in intra-day deals. It, however, trimmed gains as the day progressed. The up move comes a day ahead of the Union Budget presentation for financial year 2022-23 (FY23).

Over the past few sessions, the markets have been on a roller-coaster ride in the backdrop of the US Federal Reserve (US Fed) indicating a sooner-than-expected rise in interest rates in March 2022 and rising crude oil prices that hit the $90 per barrel mark (Brent oil) as tensions simmered between Russia and NATO over Ukraine.

Analysts say the up move seen on Monday is on account of a host of factors, including good corporate results over the past few days, positive global cues and a build-up ahead of Budget 2022.

“The markets are building on the momentum we saw in the last few days. Positive global cues and good corporate results are adding to the bullishness. There is some excitement ahead of Budget 2022 presentation, but I do not think it will add much as to how the markets play out over the short-to-medium term. If there is no major negative announcement in the Budget 2022 proposals, and if global cues remain supportive, the positive market sentiment should sustain,” said A K Prabhakar, head of research at IDBI Capital.

That said, investors will also be watching India's GDP growth and core infrastructure output, which will be released after market hours today, analysts said. 

Domestic indices corrected 2.9-3.1 per cent last week due to global cues and continued FII selling of equities worth Rs 22,158 crore. On the other hand, DIIs bought equities worth Rs 10,849 crore. Thus far in January 2022, FIIs have sold stocks totaling Rs 37,721 crore and DIIs purchased equities worth Rs 18,279 crore, data show.

G Chokkalingam, founder and chief investment officer at Equinomics Research believes investors back home should not fret about the US Fed hiking rates, as Indian equities have done well historically when the US central bank has resorted to rate hikes in the past.

"2017 and 2018 saw major rate hikes. However, indices in the US held on to some gains in 2017 but fell up to 10 per cent in 2018. However, if we look at the performance of US indices for 2017 and 2018 when the cumulative rate hikes were 175 basis points (bps), the US equity markets still gained. The Indian equity markets have risen much more and ignored the US rate hikes during this period. Thus, our argument is that ultimately a strong US and global economy matters most. Of course, the rate hikes could bring in volatility with some downward bias, but it is not going to create any major fall in the domestic equity markets," he said.

Meanwhile, the US markets finished higher on Friday, led by bargain-hunting. On Monday, Asian markets were mainly in the green, despite mixed reports on US jobs and manufacturing, and rising oil prices added to inflation concerns. 

"Our research suggests that the levels of 17,000 may act as an important support level for the Nifty. If it sustains above 17300, we can then expect it to trade in the range of 17,000 – 17,500 in the sessions ahead," said Gaurav Garg, Head of Research, Capitalvia Global Research.