With the Railway Budget tomorrow and Union Budget on Thursday, we are entering the biggest week of the year for the markets, says Udayan Mukherjee, Managing Editor, CNBC TV18.
The markets closed last week on a flattish note, stuck at 5850. On Friday, there was an attempt at a pullback, but it was not convincing, neither for large caps or midcaps. So, maybe, we can expect a flat start to what could be a big week for the market.
Though there was a US rally on Friday, we are not seeing that same kind of zing in Asian markets this morning. The S&P was up 13 points and the Dow Jones 119 points on Friday’s close. But looking at those figures for the week, both indices took a hit.
The US dollar remains steady and there has been no pullback in the euro. So, there has been no change in last week’s sentiment, which was fragile.
The next 2-3 trading sessions should give us a clear picture of the global markets.
Through last week we have been speaking about the market holding some kind of a range between 5850-6000 till the Budget. We have been grinding towards the lower end of that trading range, and haven’t been able to put in a pull back.
But there is some hope. There is one scenario that the market ambles in a 50 point range for the next few days and then if the the Budget is good, we see a bit of a pull back, a rally in the market.
These have been historic Budget moves in many years. You will see a tepid run up and then post Budget, a bit of a take off. It happened in 2010-11. So that’s one scenario.
The other, of course, is that the markets continue their correction and maybe 24-hour volatility happens around the Budget, then the downtrend continues.
I don’t know which scenario has a higher probability but for the next three days, do not expect major gains. Maybe on the last bit before the Budget hopefully we could see a little bit of reconstruction if global markets permit.
The Asian markets are just not picking up this morning for a number of reasons. The UK downgrade that has come in is not great news. There is some uncertainty around the Italian elections over the next couple of days. The long-term refinancing operations (LTRO) news also is not very palatable. You put it all together, and you can understand the mood in the Asian markets.
Also, if you look at the other things that one usually uses to measure whether risk on or risk off, it is prevalent in the near term. You haven’t seen too much of a pull back in commodities along with the US market. The dollar is very steady and there has not been a major pull back in the euro either.
So, if you just put it all together, it is not suggestive of any major change in sentiment from last week.
In the first two-three days, my sense is the market will probably trade in a range of 5850-6000. Unless there are some really big expectations, it appears unlikely that the Nifty will make a dash to 6000 straightaway.
Too much downside may also not come about before the event, because most people on the street expect a good Budget this time around.
Given expectations, the chances of the market going up on Budget day are higher than the market going down. At least that’s what it looks like from here.
Therefore, the market may not open significant downsides immediately. You could see that in the option market as well, where there seems to be a fair amount of writing of 5800 and 5700 puts.
Now, 5800 is just 50 points away from where we are. Even on Friday, a fair amount of put writing happened there. So, volatility has not started spiking in a big way, despite big events lying ahead of us. That’s the market's way of saying that yes, it’s a weak-looking screen but it does not appear that the market is about to crash immediately.
Things could change after the Budget but for now, people will go in with those expectations, and hold a range. Maybe the day before you could liven up a little bit, depending on the event, and take it from there. That, I think, is pretty much what the market is bracing itself for.
The disappointment is that on Friday, there was no change of stance in the FII basket, as they continue to short the Nifty futures quite aggressively. Given that there are just three days before the Budget - that tells you that they are probably playing for more risk off in global markets in the immediate term.
What happens in the global space is the more important magnet for us. So as we approach Thursday, if global markets have broken down by then or the prospect of a deeper correction appears to be more probabilistic, then I think Budget or no Budget, we would need to take a far dim view on our market as well.
So yes, Budget is important but we need to see how global markets move over the next three-four days as well.