Stay Bullish, Feel Bullish In Post-Budget Days

A big leap immediate after a leap year budget-the best way perhaps to explain the markets post union budget as Sensex added over 1200 points in two consecutive rallies during first two days of the third month of 2016. The year had kicked off with a dampened sentiment when it comes to the stock markets and suddenly, courtesy our finance minister, Arun Jaitley and the budget document prepared by his team, markets look refreshed, revived and musical with a fresh lease of life. To make it better and finer, markets are acting positive further assuming a rate cut coming from country’s apex bank. Till the time of filing this copy, RBI has not come up with any formal such announcement but speculations doing rounds on a possible rate cut. By the time you read this, RBI is expected to clear its stand, cut or no cut. But for the markets, it is good time celebrate.

Meanwhile, RBI has allowed capital recognition norms for the banks. Earlier the central bank had notified the banks for declaration of more bad loans as its goal to clean up piles of non-performing assets to zero by FY17. The RBI’s measure cheered banking sector after only Rs 25000 crore of capital announced in the union budget for the public sector banks (PSBs) during FY17. Though the Finance Minister already has cleared the funds announced for PSBs during the budget, he will be able to ease more if required in future term accordingly.

The overall budget was pro rural to pro market. The announcements were focused towards agriculture, infrastructure and power sectors. The cabinet also took initiative in tax reforms looking forward. The government tried investor friendly move as tax on long term capital gain has been kept on hold. The capital gains tax is levied on consolidation or merger of multiple plans within a mutual fund (MF) scheme. These announcements have helped investors to turn buying in the equity markets.

The reforms that government is working on now, will help to beat the targets of achieving up to 7.75 per cent GDP growth projected in the Economic Survey. The finance minister has set target for fiscal deficit 3.5 per cent in the upcoming FY17. The government too has set average fiscal deficit target to 3 per cent over the next three financial years.

Indian equity markets witnessed a knee jerk reaction immediate after budget declaration after touching new 52-week low as Sensex on that day shut at 22658 and Nifty 50 at 6826. But then in the immediate two days, the indexes shot up by more than 3 per cent. Major supports came from Bankex, IT and realty indices as they contributed about 7.08 per cent, 4.02 per cent and 7.36 per cent respectively.

On the other side, world’s second largest economy is not in a mood to recover. The dragons are still quiet as its official manufacturing purchasing managers’ index (PMI) fell to 49.0 in February from 49.4 a month earlier. Moody, rating agency major downgraded its outlook on Chinese government debt to negative from stable on March 2.

Shanghai Composite Index declined almost 3.65 per cent in last two weeks. However, on March 2, Shanghai increased 4.26 per cent despite of weak PMI data.The European markets rallied throughout last two weeks and increased more than 5 per cent. The U.S. market witnessed after stability over crude oil prices almost two-week high. The Brent crude oil price is hovering USD 35. The US markets too rallied by more than 4 per cent.

American Petroleum Institute issued US crude inventories data that shot by 9.9 million barrels.  Meanwhile, crude inventory data by Energy Information Administration (EIA) is awaited and expected to show a similar to the industry numbers. The Russian oil output stood at 10.88 million barrels per day in month of February, according to Russian ministry.

Interestingly, FII is still seller in the Indian markets since quite a long time. During last two weeks, FIIs sold around Rs 3000 crore while DII bought Rs 5544 crore. The institutional investors are worried over Chinese economy and likely to mark the situation as ‘advantage India.’ Indian equity markets may expect fresh FII buying going forward. We feel that markets may witness bullish trend in near term.