The markets are interestingly poised after a fairly sharp rally in the last quarter of 2004 and are now looking for new triggers and direction. One obvious source of new triggers will be the upcoming budget and related announcements that accompany it. We expect the budget exercise to be positive for the reform process, the economy and hence the markets. The positive strokes that are expected are in all probabilities in the infrastructure, where there would be fiscal incentives for speeding up the activity, further liberalisation in the foreign holding in the telecom and insurance sector with suitable initiatives in the pension sector. • This will be in line with the Prime Minister’s view of making India a global hub for all service activities and if possible a financial centre with a strong infrastructure to back it. Possibly the other area meriting attention would be the easing of the regulatory framework in terms of mergers and acquisitions in an effort to build global corporations in the country in an effort to attract economy scales and operations.• All these offer positively as far as the capital market is concerned. The immediate post budget reaction of the market will of course depend on the level of the pre-Budget run up in expectations. In this current pre-Budget phase, the market is likely to be volatile, though the overall trend will be positive as the anticipation of a positive budget builds up.• The finance minister has been indicating some broad contours of his plans for some time now. While we believe that the budget will be positive for the economy, it may not entirely meet the short-term expectations of the market. If the fervour of pre-Budget expectations build up is very high, the market is likely to fall in the immediate post budget phase.• Other than the Budget, at this point we have a situation where the prices of most market leading large cap stocks are discounting their current good performance and immediate term expansions. While many have announced fresh growth initiatives for further growth, these will take time to fructify. Over the next 12 months, the triggers for the market will be provided by the upward re-rating of mid cap stocks. The growth in the economy of the current and last year has now begun to positively impact these companies and they are set to repeat the growth story that unfolded in the large cap companies.• Over the next 12 months, we are likely to see an increasing focus on these stocks by both domestic and international investors. Another fallout of the growth of these companies is going to be a sharp rise in the level of IPO activity as these companies seek to raise capital for growth.
