Rail Budget crucial for markets

Buoyed by positive trends in the global equity markets, short covering at lower levels ahead of the Union Budget and recovery in crude oil prices, markets have posted good recovery last week. Benchmark indices — the Sensex and the Nifty — have vaulted by 723 points and 229 points to close at 23,709 and 7,210 registering their best gains in 2016.

Apart from global cues, key culprits for recent weakness and volatility in Indian markets are disappointing corporate results and “heightened fears” over the asset quality of PSU banks.

Though market is not expecting anything “big bang” from the Budget, focus will be largely on fiscal prudence, on effective implementation of investments, and on sectors which are impacted by the budget proposals.

Some minor adjustments could be in offing for increasing retail participation in equities (directly/indirectly). The big fears of 2016 — low oil prices and China’s currency moves — have eased resulting in sense of hope for near term trend in markets. However, volatile oil prices and uncertainty in China still loom large while central banks around the globe are spooking markets with extraordinary policies like negative interest rates.

Coming week will be crucial for the markets with major events like Railway Budget, Economic Survey and F&O settlement. For the week ahead chartists predict trading range of 23,000-24,500 and 7,000-7,400 for the benchmark indices. Key supports for the indices are at 23,375 and 23,050 and 7,100 and 7,000. Expect sector specific moves based on budget expectations.

Bull markets are born on skepticism, mature on optimism, and die on euphoria.

Stock Scan Ahead of the settlement week, mild short covering was seen in the derivative segment. With coming week being the last trading week before the Budget, caution was the watch word among market players. Option activity indicates highest call concentration at 7,300 strike and put concentration at 7,000 strike. Expect strong support at 7,100 levels and strong resistance at 7,350 level for the Nifty.

The “pull back” rally was led by Metals, Capital Goods, Autos and Realty.

Expectations of recapitalisation of PSU Banks equity are high. Avoid fresh selling till clear picture is out. Gutsy traders can start biting into PSU bank counters slowly.

Assessment of receding El Nino has raised hopes of a better monsoon. FMCG counters will be back on the radar if the budget has no nasty surprises on the excise front. Buy HUL, Dabur and Godrej Consumer. Metals have started regaining shine. Stocks looking good are Ashok Leyland, JSW Steel, LIC Housing Finance and Karnataka Bank. n Assessment of receding El Nino has raised hopes of a better monsoon. FMCG counters will be back on the radar if the budget has no nasty surprises on the excise front. Buy HUL, Dabur and Godrej Consumer. Metals have started regaining shine. Stocks looking good are Ashok Leyland, JSW Steel, LIC Housing Finance and Karnataka Bank. n Assessment of receding El Nino has raised hopes of a better monsoon. FMCG counters will be back on the radar if the budget has no nasty surprises on the excise front. Buy HUL, Dabur and Godrej Consumer.

C. Kutumba Rao is an avid follower of stock markets. This newspaper is not liable for decisions made on the basis of this column. Views expressed in the article are personal views of the writer.