The Hindu Business Line : Traders sceptical of taking part in pre-Budget rally

Last week’s slight rain in Mumbai and Kolkata may have kept pessimism at bay, but very few market players are overly bullish about a pre-Budget rally this week. The expectations from the Budget are priced in. A rally would require a sizable dose of liquidity.

According to market intelligence, major players and market operators appear tentative in committing great sums of money before the Budget announcements. Export-oriented sectors and infrastructure, including agricultural infrastructure, could get Budget’s investment and spending focus. But management of fiscal deficit would keep public spending within a limit.

Proposals for divestment in public sector enterprises, another element to cheer the market, could hardly be expected from the Budget document. The corporate earnings during the quarter ending this month may also not surprise. The worry over delayed monsoon and deficient rainfall too is working as a restraining factor.

Strategically, thus, it is convenient to wait till a cloudburst of announcements takes place.

An underlying bullishness, however, still exists; as many tend to believe that by the end of the calendar year the economy as well as the corporates earnings’ scenario would turn for the better.

Enough liquidity is on the sidelines and looking for the right timing to get in.

The Budget announcements may trigger fresh buying provided some of them generate confidence and create pockets of valuations.

The Budget is also expected to announce some form of tax relief for equity investments. Coupled with falling rates, this may attract more local money into the market.

According to investment advisors and fund managers of overseas’ investors, a section of foreign players may take tactical calls in favour of buying equities after the direction of the economy and the policy stance becomes evident from the Budget.

Incidentally, a significant amount of money, which is being raised through QIPs, is likely to come in after the current roadshow phase is over. The process of raising money would climax only after the Budget. The ambivalence on the part of the investors and the traders’ general reluctance to take additional risks are, however, likely to keep the level of volatility high this week.

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