Post-the temporary resolution of the fiscal cliff issue in the US, several market analysts say the focus now shifts to reforms, Budget, monetary policy and corporate earnings .

Nifty rallied to hit the psychological barrier of 6,000 last week while the Sensex too breached the 20,000 mark in intra-day trade but closed slightly lower.

The ‘fiscal cliff’ crisis was averted in the US after the House of Representatives on Tuesday approved a Senate Bill that raised tax for the rich and delayed spending cuts.

Rub-off effect

“There is going to be a rub-off effect of the global sentiment on Indian markets as well. People are expecting that a positive global sentiment coupled with the expectation of a rate cut in the upcoming monetary policy review by RBI is going to drive the performance of rate sensitive sectors,” said Rajat Rajgharia, Director-Research Motilal Oswal Financial Services.

“Given 2014 being the election year, Government’s mandate this year would be to kick-start the economy through the rate cut which would ensure their re-election next year. So we are expecting a 50 bps cut before the quarter ended March and a 100 bps cut by December end,” added Tata AIG, CIO, Sarvana Kumar.

This apart, the outlook on the upcoming corporate earning season also appears robust with the street expecting a bottoming out of earnings going forward. IT giants Infosys and TCS would announce their quarterly results on January 11 and January 14.

The rally is also expected to bring certain mid- and small-cap companies through increased FII inflows, according to Madhumita Ghosh, Head of Research, Unicon Financial Intermediaries.

Small, mid-caps set to rise

“FII money which has so far flowed into the top companies or A category stocks would now flow into the quality mid-cap companies in the next market wave. A lot of small- and mid-cap companies which have now reduced the debts off their balance sheets and are getting into the capex cycle could come into the investor limelight now,” she added.

After pumping in over $28 billion in 2012, FIIs remained net buyers to the tune of about Rs 5,800 crore in the first five days of trade so far in January 2013.

The expectations from the Union Budget in February are also dominating their way into the market with expectation from the street being of a ‘mixed’ or ‘balanced’ Budget with a combination of both populist and reformist agenda on the cards and the Government’s added effort being to arrest the widening fiscal deficit.

“It is expected that fuel subsidy is going to be directly transferred to the beneficiaries so that the Government’s subsidy burden comes down. This, however, might also translate into higher prices for energy be it power, diesel or gas,” said Gaurang Shah, Assistant Vice-President, Geojit BNP Paribas.

Divestment programme

The Government’s disinvestment programme coupled with expectation of a backlog of IPOs and offer-for-sales (OFS) likely to hit the market along with supply papers coming in owing to SEBI deadline for meeting minimum public shareholding norms by June could also help sustain buoyancy in the markets, according to some marketmen.

“We are expecting a minimum of $14 billion worth of supply papers hitting the market in the near-term. Of this $7 billion would be mobilised through IPOs and OFSs, $5 billion through PSU disinvestment and $2 billion through meeting of SEBI minimum public shareholding norms,” added Kumar.

Crude oil concern

However, experts believe a key challenge which could spoil the party for the bourses would be volatility in global crude prices. “If they shoot up beyond current levels of $104 a barrel, fiscal deficit would go up. Also for every $10 increase in price of crude, there would be a shortfall of $10 billion in the current account deficit,” said Kumar.

>manisha.jha@thehindu.co.in

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