MARKET TO DRIFT TILL BUDGET

In last couple of weeks, the European markets too showed many ups and downs. There was news about the Greece government privatising the country’s main port. Further, the newly elected Greece government has discussion with its international creditors couple of times during last fortnight. However, there seems to be no agreement on its debt issues both times intensifying the Greece’s exit from Eurozone. The Syriza-led Greek government wants its Eurozone partners to give it time and financial flexibility to renegotiate the terms of its bailout. Ahead of the month end deadline, we would have predicted volatility in the European market till month end.

The European shares recovered on last Tuesday and Wednesday after considerable correction on Monday after a talk collapse of deal negotiations between the Greece government and its international creditors on last Monday. However, the Greece's government confirmed that it would ask for an extension to its debt agreement with the Euro zone on last Wednesday. Meanwhile, there was an agreement and the ceasefire between the Russia and Ukraine; despite there still a number of crucial points of disagreement remained unaddressed. The global markets cheered the positive news on the ceasefire.

The next big trigger for the domestic markets is the Union Budget which is scheduled on February 28. There are some news coming on disinvestment target for the next year. The government is expected to keep an ambitious Rs 65000 – 70000 crore worth disinvestment for next fiscal year. This will be huge positive for the market as government will find sufficient funds for its public spending along with adhering its fiscal deficit targets minimizing pressure on government finances. Further, there are news flow stating doubling of allocation to Rs 45000 crore for the highway sector as the government’s push to infrastructure.

Despite all the positives flowing around the Indian economy, the overall December 2014 earnings has not been that great as the revenue growth remained muted and also margins expansion has not been witnessed. Hence the corporate earnings season is little weak to justify the current valuations in the domestic market which are primarily driven by bullish sentiments about the Indian economy. However the earnings are expected to improve as the actual implementation of the reforms get started in coming few months taking markets to new highs. There are huge expectations from the coming Union Budget and the market will see considerable correction if these expectations are not met. Hence the market would see a volatile movement over next couple of weeks.