Budget To Determine Market Direction

The markets witnessed a slow fortnight in the backdrop of the RBI monetary policy announcement, as budget anticipation takes centrestage, says Saikat Mitra

The markets have remained muted in the last fortnight for lack of significant triggers. The Sensex and Nifty ended the fortnight losing more than one and a half per cent. At the end of the last month (January 29, 2013), the RBI cut the repo and reverse repo rate by 25 basis points. However, this failed to cheer the markets as a 25 basis points cut was already discounted by the markets. A 25 basis points cut in CRR was however a surprise element that helped in infusing liquidity worth Rs 18000 crore into the system.

We are currently approaching the end of the earnings season for the third quarter of FY13. Till the time we went to press, 1088 companies had declared their results. On a YoY basis, the topline and the bottomline grew by 14.23 per cent and 51.83 per cent respectively.

Considering these results, it can be said that the telecom companies have come out with better- than-expected numbers this quarter. This improvement could be attributed to reducing competitive pressure and a higher data usage. In a nutshell, it can be said that India Inc. has come up with a better report card.

On the rupee front too, there has been a positive movement. The INR, which had dipped to the level of Rs 57 per USD, has started appreciating since the beginning of the current calendar year. This appreciation is backed by the intervention of the central bank, besides policy momentum. There is, however, a flip side to this too. The appreciating rupee may play spoilsport for the IT sector that has enjoyed the benefits of rupee depreciation in the last two quarters.

On the other hand, the Finance Minister is now concentrating on bridging the fiscal deficit gap, asking the authorities to mop up the tax collections. For FY13, the budget estimate for direct and indirect tax collection had been set at Rs 5.70 lakh crore and Rs 5.05 lakh crore. But in the first nine months, the tax collections stood at 62.76 per cent of the total budgetary estimates. If the tax mop-up meets its target, then it will surely be a positive step towards bridging the twin deficits.

Taking a look at the global markets, in the December 2012 quarter, the world's largest economy - USA - posted negative GDP growth for the first time after June 2009. Cuts in defence spending and a decline in stockpiles saw the US economy contracting by 0.1 per cent for the fourth quarter of CY12. The last such occurrence in 2009 was in the wake of a financial meltdown in the country. The drop has taken the markets and economists by surprise, as a 1.1 per cent growth in the US GDP this quarter was widely expected. However, this had a meagre impact on the markets as Dow Jones was up by around two per cent during the last fortnight.

Coming back home, the broader market fell more than the Nifty and Sensex. The BSE Mid-Cap and Small-Cap closed in red, declining by 2.28 per cent and 4.06 per cent respectively. On the sectoral basis, eight out of the 13 indices closed in the negative zone. The BSE FMCG index has gained the most, moving up by more than two and half per cent. BSE Realty (+1.31 per cent) and BSE Consumer Durables (+0.99 per cent) were the other top gainers. The main draggers in the last fortnight are the BSE Power index (-4.84 per cent) and the BSE Oil & Gas index (- 4.10 per cent).

Money inflows remained strong in the last fortnight, with the FIIs pumping in Rs 2565 crore in equities. The FII investment has been on the positive for a while now. So far, on a YTD basis for CY13, they have pumped in about Rs 26000 crore. The DIIs were the net sellers and sold off equities worth Rs 5469 crore in CY13 till date.

Going forward, there is some monthly data, like the IIP and the WPI that are slated to be announced next week and will give some direction to the markets. But with the onset of February, expectations are being built around the Union Budget 2013-14, which is likely to be the next trigger moving ahead.