This can be inferred from the fact that the Union Budget‘s effect on short-term market performance has been dwindling with Budget Day volatility standing at 9% in 2022 when compared to nearly 18.7% in 2010.
Although the budget’s short term influence on the broader markets has been diminishing, it does lay a foundation to determine which pockets of the economy are likely to benefit from a mid to long term perspective and offers an opportunity to position one’s portfolio accordingly.
This time, the sectors that are likely to outweigh the others from the budget include the infrastructure sector, thanks to the government’s continued thrust on developing world-class modern infrastructure including highways, railways, mass transport ways and logistic parks.
This not only is expected to increase the pipeline of orders for listed contractors and infra developers but will also bode well for capital goods, cement, logistic and commercial vehicle companies.
Further, the companies linked to the electric vehicle space will also bloom under the government’s initiative of boosting the efficiency of the EV ecosystem.
Additionally, plays on affordable housing such as housing finance companies, mass-market building material companies will also be key beneficiaries. Therefore, investors can look to pick up stocks of strong companies from the segments that will be positively impacted by the budget.
Event of the week
In the week gone by, India’s 10-year government bond yield soared to its highest level in two years at nearly 6.9% as investors became apprehensive by the higher than expected net borrowings that the budget accounts for.
Further, the absence of budget announcements towards easing of India’s inclusion in the global bond index also aggravates concerns on the demand side. These factors coupled with the clampdown on global liquidity led to the bond selloff.
A significant increase in long-term sovereign bond yields will trickle down to raising borrowing costs for the rest of the economy as well. If the yields continue to rise, the RBI may have to jump in as a buyer of bonds to cool off the effect and this now puts RBI in a challenging position as buying bonds would call into question the gradual policy normalisation underway.
Nifty50, driven by budget and global sentiments, rallied during the first half and closed the week on a positive note. However, the index is facing resistance around its 20 day EMA and now seems to be forming a lower top.
On the contrary, the BankNifty index has made a higher high and exhibits a bullish undertone due to the recent outperformance of the PSU banks. As long as the Nifty does not break below 16,850, it is more likely that the lower top formed on the daily chart may end up being a minor decline.
Considering these factors we suggest traders to maintain a neutral to a mildly bullish outlook for the coming week. Immediate resistance on the higher side is placed at 17,800 levels.
Expectations for the week
The key event that the markets will watch out for is the RBI’s MPC meeting. Unlike its global peers, RBI has been behind the curve and has been downplaying inflation risks.
With higher government borrowing announced in the budget, soaring global inflation and the lag in private consumption and investment, D-Street will monitor the future path of monetary policy.
On the global front, markets continue to be choppy and investors will be looking for hints from the US inflation data, to determine their course. Amid this increasing volatility, investors can continue to accumulate quality stocks in a SIP format.
The Nifty50 closed the week at 17,516 up by 2.42%.