The Narendra Modi–led government is gearing up to present the Union Budget for 2016-17 on February 29 at a time when the global financial markets have been rattled with developments in China amid a sharp fall in crude oil prices and global economic slowdown.
In its sixth bi-monthly Monetary Policy review, the Reserve Bank of India (RBI) has put the onus of maintaining fiscal prudence on the government, which will unveiling its policies in the Budget.
|WHAT THEY WANT|
So, what does the Budget have in store and what do the markets expect from the finance minister? Also, will there be a pre-Budget rally this time around?
Also Read: Rajan puts the ball in Jaitley's court
Read our full coverage on Union Budget 2016 Vaibhav Sanghavi, managing director at Ambit Investment Advisors, says: “The markets are expecting that the Budget will focus on the rural segment, thereby reviving the rural economy. The government also needs to be on the path of public expenditure and be fiscally prudent. As regards structural reforms, the markets are eagerly looking forward to the Bankruptcy Law.”
Also Read: RBI, FinMin on same page on fiscal prudence
Adds U R Bhat, managing director, Dalton Capital Advisors: “India has benefited from the fall in international crude oil prices. The markets will definitely like to know how the government intends to use that money in terms of accelerating the growth potential of the economy. This is one thing that will be very keenly watched. If they end up giving more subsidies, it will be a big disappointment for the markets.”Pre-Budget rally
In the past decade, only on two occasions did the BSE S&P Sensex recorded a gain during the one-month period before the Union Budget presentation.
While most analysts remain optimistic on the road ahead for the equity markets from a long-term perspective, they expect the markets to be driven by global events rather than events back home.
Bhat of Dalton expects the Nifty50 to remain between 7,250 and 7,850 over the next two months. He does not see the index crossing the 8,000-mark in a hurry and sees an immediate support at 7,100 levels.
Also Read: There is a lot of value in emerging markets: Jan Dehn
However, A K Prabhakar, head of research at IDBI Capital, has a more bearish view and expects the Nifty to breach this support of 7,100 on the downside going ahead.
“Usually, investors expect the markets to witness a pre-Budget rally. However, this time around, things are turning towards the negative and believe that given the focus on the rural economy, the government may not adhere to the fiscal deficit targets. That apart, the December quarter results season has also not been supportive. I expect the market to correct till 7,100 (Nifty) before it stages any recovery. Over the next few months, it is quite possible that the Nifty drops to 6,600-6,800 levels,” he says.
|Senex return in %*|
|*% returns one month before and after Union Budget|
|Data compiled by Business Standard Research|