Markets To Turn Choppy Next Week

The first trading session of the week beginning February 1 will coincide with the Union Budget presentation. How the market perceives the Budget proposals, will set the tone for the rest of the year.

For the first time since September last year, the benchmark indices ended with a loss of over 5 per cent after six successive sessions of fall on Friday last week. Nifty closed the week at 13,365 while Sensex ended at 46,286. It indicated fear had gripped investors’ mind.

Market movement on the Budget-day is crucial as it sets the future direction for the market. Analysts, however, believe that the tone has been already set. Even if budgetary proposals succeed in meeting market expectations, the probability of indices crossing recent peaks is very low. If it fails to meet expectations, ‘healthy’ correction witnessed recently, may gather further momentum.

Rich valuation and weak global cues prompted leading foreign portfolio investors (FPIs) to turn into net sellers. It washed away gains in indices accrued during the year. As expected, the last trading week was hyper volatile, and the next week is expected to be no different.

FPIs offloaded more than Rs 6,000 crore in the cash segment and significantly reduced positions in Index futures last week. It clearly indicated that the hot money, which took indices to dizzy heights, was flying off from the market ahead of the Union Budget. Volatility (India VIX), jumped 12 per cent to 25.31.

Shrikant Chouhan, Executive Vice President at Equity Technical Research, Kotak Securities, suggested that traders should reduce weak long positions between 14,200 and 14,500 for Nifty and 47,200 and 49,000 for Sensex.

“Buying is advisable if Nifty or Sensex drops to 13500 or 46000 points with a final stop loss at 13200 and 45000 levels respectively. The focus should be specifically on financials, pharmaceuticals and commercial vehicles”, he recommended.

Deepak Jasani, Head of Retail Research, HDFC Securities, said: “The high low bar of Friday engulfed that of the previous sessions thus dampening hopes of a turnaround in the indices. In the choppy trade over the next two sessions, Nifty could take support at 13373-13399 band and later at 13128.”

Rusmik Oza, Executive Vice President, Head of Fundamental Research, Kotak Securities said, “Weak closing of Nifty-50 below 14,000 marks on expiry day portrays there could still be a weakness in the market if the budget disappoints”.

International markets were also on correction mode due to new lockdowns enforced in some countries and concerns over new strains of the COVID-19 virus. Indian markets were down in line with Asian markets which fell 4.2 per cent this week.

European stocks closed lower on Friday following weakness in Asian markets as concerns around a slow rollout of COVID-19 vaccines mounted, and a retail trading frenzy gripped Wall Street. This was despite the stronger-than-expected GDP data in leading European economies. French economy shrank 1.3 per cent in the quarter ended December 31 (vs 4 per cent fall expected), German economy slid 2.9 per cent (vs 3.4 per cent expected) and Spain’s economy grew 0.4 per cent (vs 1.5 per cent expected decline).

Investor concerns grew over speculation over a shift to tighter monetary policy by China as short-term money rates rose and hit its highest since 2015. The People’s Bank of China injected 100 billion yuan into the financial system on Friday to address its tight liquidity situation.

Vinod Nair, Head of Research at Geojit Financial Services, said: “Global sentiment turned fragile as recent lockdowns delayed economic recovery and fueled speculative activities in the US market.”

India’s real GDP is expected to expand by 11per cent in 2021-22 after seeing a contraction of 7.7 per cent in 2020-21, as per the Economic Survey. This could lead to a healthy Nominal GDP number for 2021-22 budget estimates. Union Budget would be the key to add strength in the domestic market to perform better than the rest of the world. Expectations are high that the government will find a balance between populism, reform and growth under a weak fiscal position, affecting the markets.

“The global market will be watchful of any regulatory actions which may be taken given the recent speculations, doubting the efficient working of the market system,” Nair opined.

“We need to wait and see how Nifty-50 closes on Monday after the budget to get the next directional indication,” said Oza.

Nirali Shah, Senior Research Analyst, Samco Securities advised investors to selectively buy at lower levels and not take rash news-based decisions. Traders should stay on the side-lines as the Budget Day could witness massive volatility and random knee-jerk reactions.