Indian markets have rallied most of the time in the run up to budget and this time it is no different. However, there is much more euphoria and the pre-budget rally has been quite strong aided by strong inflows and Congess party's stupendous performance in election 2009. The big challenge is now for UPA on the implementation front. Both the foreign and domestic money pushed the bourses, stock prices of almost 90% companies significantly higher than their 52 week lows hit when markets tumbled below 10K. This week has seen a bit of gains getting erased mainly on concerns regarding the monsoon. The 15000 index level on the Sensex still remains a psychological barrier and Negative inflation, Good IIP numbers unable to provide cushion. Had the monsoons arrived on time we would have been 8-10% higher. The sentiment globally has also changed for good and even global markets have rallied. Whenever Indian market rallies more than its Western peers, the talk about decoupling starts. I personally feel it is still a long way off. The budget on the 6th of July is gonna be a make or break budget for the stock markets. There are lot of expectations being built. In case the budget fails to address them, I expect a 1000 point shave off on the Sensex the same day. The underlying tone might also turn slightly bearish. Fresh selling by players who entered the market recently can drag the markets lower but there is always value to be bought in such panic situations.
The defensives like Pharma, FMCG and IT have come back to life in recent weeks after exceptional rallies by stocks related to Infra sectors. RIL had a bad week after the court judgement went against it. The impact of it would be felt by RIL only in 2011 but the stock has seen almost a 200Rs cut. Watch out for Bharti Airtel as the MTN deal might be clinched any time soon. Infra would remain the flavour of the season. Need to see how much money the Reliance Infra scheme collects in its NFO. Agri and Irrigation might be the focus in this years budget and watch out for those stocks. The railway budget prior to the main budget has seen a run up in stock prices of stocks like Kernex, Kalindee, BEML, Texmaco etc.
Another 2 weeks to go for the main event. Some are referring to it as the game changer. Let's hope that the positives outnumber the negatives. Budget has had an impact on the performance of markets every year and I expect this year to be no different.
Disclaimer: All views presented here are personal in nature. Readers need to take informed investment decisions. I have a vested interest in the markets going up and hold RIL amongst the stocks discussed.
