The domestic market is likely to see profit-taking this week as the Budget presentation approaches. SGX Nifty at 18,210 indicates that Nifty may see a nearly 75-point gap down opening; Nifty futures on Friday closed at 18,282, while the Nifty closed at 18,255.

Mixed signals from global markets

However, global markets are trading mixed, with Japan's Nikkei climbing almost one per cent. Equities across Taiwan and Australia gained marginally, while Korea's Kospi and Hang Seng are down slightly.

According to analysts the bullish momentum that set in at thedawn of 2022 is likely to continue ahead of the Budget presentation. The Finance Minister will unveil the Budget for 2022-23 on February 1. According to them, Q3 results have so far not disappointed in a big way. However, the majority of companies that declared December quarter results were from the IT sector. The broader picture will emerge only when companies from various sectors and their management commentaries are out, they added.

Global trends will have lesser influence on domestic markets in the next few days, the added. According to them, the focus will be on Q3 results and Budget-related talks.

According to Santosh Meena, Swastika Investment, the pre-budget move has started in many pockets and that is likely to continue.

Market experts believe that stock-specific action is likely to continue.

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd, said: "The current economic scenario is quite similar to the one that existed in the early phase of the 2003-07 cycle and investors are expecting hat 2022 will potentially witness the unfurling of India's much-awaited capex cycle."

Meena said: “If we look at the trend of the last three years, market begin to correct between January 15 and 20 and then we see a big post-budget rally. It will be interesting to see how the market approaches Budget 2022.

Broader rally

Rahul Sharma, Co-owner, Equity 99, said: The winning streak in the market came to a halt on Friday. However, we saw some buying in quality counters in the small-cap space. In the coming days, we expect sector specific movement in the markets. However the midcap and smallcap space will show a good move in the coming days. Overall, the market outlook looks positive and one should look to keep adding quality stocks in their portfolio. "

According to Meena: "If we look at the data, then FIIs' long exposure in the index future stands at 66 per cent, while the put-call ratio is at the 1.25 level that is neutral to positive for the market. Open interest distribution shows the highest OI at 18000 strike call option, while 18200/18000 put strike prices have the highest open interest and may act as an immediate support level," he added.

'Speed breaker ahead'

However, some analysts are cautioning on the sustenance of the current rally given the valuation.

According to Shrikant Chouhan, the earnings momentum is likely to continue in Q3-FY22 from Q2-FY22. Further, given recent events in light of the Omicron variant of Covid, it will be critical to closely listen to the management commentary of various corporates.

"Most of the positives are already priced in the current valuations and hence investors should bet on the right sectors and select a superior stock offering; decent risk reward will help generate alpha in 2022," he added.

Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said: Record high inflation in the US is dampening sentiment in an other wise positive macro data environment. "Moreover, the markets have recovered sharply by more than 10 per cent from their recent lows of (Nifty) 16,400, in just 20 days. Valuations are no longer cheap and require strong earnings delivery for sustenance of positive momentum in the market."

Technically, the near-term uptrend status of Nifty remains intact and Friday's intraday weakness has not dampened the effort of bulls to sustain the highs, said Nagaraj Shetti, Technical Research Analyst, HDFC Securities. "The emergence of sustainable buying from the dips and an overall positive daily chart pattern signals the next upside target of 18600 levels by next week. Immediate support is placed at 18100 levels."

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