Updated: February 2, 2021 7:44:51 am
Stock markets, which witnessed a roller coaster ride in the last two weeks, are bracing for more volatility on Monday and in the coming days with expectations and worries running high ahead of the keenly awaited Union Budget.
After hitting the 50,000-mark in a non-stop rally recently, the Sensex fell by around 3,800 points to 46,285.77 last week mainly due to selling triggered by foreign portfolio investors (FPIs) who pulled out Rs 12,700 crore in the last five sessions. “Going ahead, markets may continue to remain highly volatile amidst ongoing earnings season and Union Budget 2021 on Monday. Expectations from the Budget are running high. However, the government’s fiscal response in 2020 indicates certain inflexibility and the lack of resources to stimulate the economy,” said Siddhartha Khemka, head—retail research, Motilal Oswal Financial Services.
“We would suggest investors to take opportunity of this fall and accumulate quality stocks on dips while traders should be cautious with stock specific action. Market would also track the RBI’s monetary policy next week along with BoE’s monetary policy for further cues,” he said.
Deepak Jasani, head of retail research, HDFC Securities, said a larger fiscal deficit in FY22 (though smaller than FY21) is on the cards in the Budget. “This could spur economic growth, but create pressure on interest rates and inflation later. Reaction of the sovereign rating agencies to the Budget proposals would be interesting to watch. Given the fact that countries all over the globe are following similar policies, it would be difficult for them to single out India for harsh comments/evaluation,” he said.
Analysts said the Budget will be the key to strengthen domestic markets to perform better when compared to the rest of the world. “The risk is that expectations are high that the government will find a balance between populism, reform and growth under a weak fiscal position,” said Vinod Nair, head of research, Geojit Financial Services.
According to Bank of America Global Research, there have been enough signals from the government that the Budget could be growth focused as against worrying about fiscal constraints. “We expect budget to step up capex, recap PSBs, push asset sales/break government monopolies, see sops for real estate, tax cuts for lower income groups and potential for creation of ‘bad bank’. Our economist expects them to be funded by high fiscal deficit (5 per cent for FY22), cess for high income groups and non-fiscal measures such as use of RBI’s revaluation reserves, recap/infra bonds,” it said.
Some expectations from the Budget include some form of tax breaks to spur consumption, incentives for housing/insurance spends with fiscal impact likely to be balanced by Covid cess on higher income groups, new DFI for funding infra, expansion of PLI schemes to include newer categories like LED TVs and creation of bad bank (though an old idea which has found no takers yet), the firm added in its note.
Analysts also see high possibility for tax cuts for low income groups to boost consumption, sops to spur real estate demand, recapitalisation of PSBs by 0.25-0.5 per cent of GDP via non-fiscal levers like recap bonds (Rs 20,000 crore and use of $125-billion RBI revaluation reserves), expansion in MSME credit guarantee scheme and structural reform in the form of breaking large government monopolistic sectors and introduction of private and foreign competition as outlined under the PSU policy last May.
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