New tax regime announced in budget could impact fund flow

The next few weeks will see the Nifty and Sensex movements dictated by crude prices and FII flows.

This week's tone for the benchmarks is bearish and they might shed four to five per cent.

There is fear that 10- year G-sec yields might breach 8.5 per cent levels this week. The benchmark could settle between 8.56 per cent and 8.58 per cent by the end of this month.

Probability of RBI continuing open market operations to support the centre's borrowing programme (of Rs 4.8 lakh crore) next fiscal is very high.

The street is also anticipating FII outflows and oil payments to weaken the rupee by around two per cent from last week's levels of Rs 50.155 to a dollar.

The new taxation regime announced in this budget is sure to have a negative impact on fund flows – FII and FDI.

Financial markets globally are also entering an interesting phase.

Yields on 10-year US treasuries have breached 2.2 per cent levels and ended last week at 2.29 per cent despite encouraging data coming from the US in the last few weeks.

Yields are expected to correct in the first half of this week to 2.19 per cent levels and again harden by the week end.

This is an ominous sign for oil prices and Nymex crude futures could touch or even breach $110 a barrel this week.

IMF's Managing Director, Ms Christine Lagarde, said last week that fragile financial systems with high debt in Euro zone, rising oil prices and the risk of slowdown in emerging economies are the three major economic and financial vulnerabilities.

The Euro is expected to remain flat this week and be within 1.3 to 1.33$ to a Euro levels this week.

Gold might pull back to $1,710-1,715 levels to an ounce and again retrace towards where it ended last week ($1,655 an ounce).

(This article was published on March 18, 2012)
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