Pundits divided on sustenance of market rally

While the stock markets managed to close in positive territory post-Budget, though correcting steeply from the day's high, there are divergent views among market players here as to whether the gains made on Budget day are sustainable.

Apparently, more than the presence of positive news, it was the absence of any negative news in the Budget that seems to have acted as a relief, providing a push to the indices on Monday.

The BSE Sensex saw wild fluctuation during the course of the Budget speech. The Sensex, which was up by about 100 points before the Finance Minister Mr Pranab Mukherjee commenced his speech, later climbed up steeply after the Budget presentation but, as the day wore on, started coming down as the full impact of the Budget proposals was absorbed by the investors. In the closing 30 minutes, the Sensex struggled to retain the 100 point-gain it had at the beginning of the Budget speech but closed with a gain of about 123 points.

Speaking to Business Line , Mr D.Balasundaram, Founder, Coimbatore Capital Ltd and former President of Coimbatore Stock Exchange, said Monday's market ‘optimism is unjustified' and the spurt in Sensex was not supported by any measures contained in the Budget.

He said the market was fearful that “the stimulus package may go”, which, however, did not happen, enthusing the market players. But he said there was a ‘big if' over whether the expectation to mop up Rs 40,000 crore through PSU disinvestment was achievable in view of the fact that this would depend on market conditions and on which stocks were off-loaded and at what price.

Mr Balasundaram was also not fired up by the idea of facilitating direct investment by foreigners in Indian mutual funds. This would help individual investors who do not have the help of professional analysts to help them. But he felt this was at best “a convenience, not a great new addition.”

No material market changes

Mr Jose C Abraham, Managing Director and Chief Portfolio Manager of Fortune Wealth Management Company India (P) Ltd, Coimbatore, however felt that “overall, it is a positive Budget from the stock market point of view'. He said that permitting foreign nationals to invest in Indian mutual funds was an “unexpected big bang” announcement. This should boost fund flow into mutual funds and thereby “help increase the depth of the market.”

He said the lower than expected hike in IT exemption limits for individuals, non-revision of excise duty on crude oil, raising of MAT and non-extension of STPI benefits, absence of any announcement regarding FDI in retail, etc, were “what disappointed the market.”

Mr Abraham said the “Budget has not changed anything materially for the market”. Market is largely in the process of adjusting to higher inflation, high interest rates and a ‘scandal ridden government'. Most of these factors are built into the prices and further downside was limited, except due to further oil shock.

He said the stock market has become a ‘stock pickers' paradise' and investors should look at companies' performance and valuation before investing, rather than blindly picking up stocks since any upward movement in share prices would be stock-specific.

He felt that sectors such as banking and FMCG hold promise as bank interest rates have peaked. The banking space also would witness intense competition and M&As because of the opening up of the sector. The commodities space also merited attention due to growth in GDP and increased investment in industries. But investors should have a time-frame of over a year to benefit from prudent stock picking.

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