Monday, March 2, 2015

What lies beyond the Budget

What lies beyond the Budget
Arun Jaitley has had his say. If the gyration of the stock market on Saturday is anything to go be, investors appear confused. But that is not such a bad thing.
Markets typically tend to latch on to any one positive or negative factor to send stock prices surging or crashing.
This time, investors appear to be paying more attention to the details.
The uncertainty appears to stem from the fact that the Finance Minister has deftly mingled positives and negatives in the Budget to serve up a concoction that is directed towards raising funds to kick-start the economy. The prospect of reduction in corporate tax over the next four years to 25 per cent is a definite positive for companies.
But this has been offset by the increase in service tax, excise duty and the additional surcharge on companies. Investors can see their tax outgo reduce, but only if they plough their surplus into savings instruments such as insurance and NPS.
Postponing the implementation of the General Anti Avoidance Rule by two years will assuage the fears of foreign investors, who now control almost half the country’s free-float market capitalisation. But the Government has left the Securities Transaction Tax unchanged, disappointing the trader fraternity.
Overall, since the Budget has its eye on the long-term growth, investors will now struggle to find a trigger to take stock prices higher from these levels in the near term. With the Sensex price earnings multiple at 20, stock prices need to halt and move sideways for a while to allow earnings to catch up. Volumes in the derivative segment of the NSE hit a record level of over ₹500,000 crore on Thursday, the day of the derivative expiry.
Cash volumes hit a crescendo towards the end of the week. FPIs turned net buyers in equity again, after remaining net sellers through February. Oscillators in the daily chart are dipping lower displaying negative divergence.
This signals weakness in the short-term outlook. Weekly oscillators too are moving sideways after a decline. This means that theuptrend lacks inherent strength and a decline is imminent.
Sensex (29,361.5)
The Sensex is attempting to recover from the intra-week low of 28,693.
The week ahead: The short-term trend that reversed higher on February 10 continues to be in force.
This trend will face initial resistance at 29,844. Once this level is surpassed, the index can go on to 30,171.
But the Sensex is likely to stutter once it nears the 30,000 mark. So watch out for turbulence around that region. Reversal from the 30,000 mark can bring the index back to 28,000.
Supports for the week will be available at 28,322, where the 50-day moving average is positioned and then at 27,815.
Short-term trend will be under threat only if the index declines below 27,815.
Medium-term trend: Medium-term trend in the index continues to be up. If the index manages to get past the hurdle at 30,200, it can move on to 30,900 or 31,419 in the coming weeks.
But as we have been reiterating, it is best to watch out for a medium-term reversal from here on.
Declining strength in momentum indicators and the fact that we have not had a meaningful correction in a long time support this assumption.
Key medium-term support stays at 25,120.
Nifty (8,901.8)
After gyrating wildly over the week, the Nifty ended with less than 1 per cent gain on Saturday.
The week ahead: The short-term trend in the index is currently up. But investors should watch out for correction as momentum is slowing down in the short as well as medium term. Nifty can rally to 8,996 or 9,112 in the week ahead. But investors should watch out for a reversal from the zone between 9,000 and 9,100.
Supports for the week will be at 8,669, 8,558 and then 8,421. The 50-day moving average positioned around the second support will cushion any short-term decline.
Short-term outlook will reverse only on a close below 8,428. Next support is at 8,102.
Medium-term trend: The medium-term trend in the Nifty is not under threat yet. If the index gets past 9,100, it can head towards 9,400 over the coming weeks. Key medium-term support is at 7,800.
Global cues
Global benchmarks edged higher over the past week. European benchmarks were very strong with the CAC, DAX and the FTSE closing with gains over the past week. The DJ Euro STOXX 50 closed 3 per cent higher.
The US markets were however sedate after the strong surge witnessed in the previous week.
The Dow closed the week on a flat note reflecting investors’ nervousness as the index approached the 18,000 mark.
The S&P 500 and the Nasdaq too closed flat, giving up the gains made in the early part of the week.
Investors are likely to struggle to find triggers to push stock prices higher

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