Feb 19, 2013 08:56 PM IST | Source: CNBC-TV18

Investors will be cautious till Budget: Udayan

It has been a quiet start to the week, with the US markets shut overnight and the earnings season over, and it looks like this trend is going to continue till the Budget next week.

The street is likely to remain quiet until Budget in the absence of any market-moving news, says Udayan Mukherjee, managing editor, CNBC-TV18.  He says bulls and bears don’t know how to stack their position and hence market is bracing itself for sideways consolidation.

FIIs too are going to stay away because "they have already put in a lot of money, so why would they want to stick their neck out before the Budget?" With domestic earnings not looking too good, it is evident that both global and domestic investors would remain cautious.

Take a look at the way foreign Institutional Investors (FIIs) are approaching things on the Futures and Options side. They have already put in lot of money. The government paper divestment calendar is expected to be quite brisk so may be they are keeping a little bit of their ammunition dry for that.

Globally the markets have had such a good run, there is an air of mild unease. People are just pausing to see if there is another leg of up move or markets will indeed pause here or even retrace a little bit.

So both from a global and from an Indian perspective, it makes sense to just sit and wait for the next 10 days and watch triggers play out. Therefore, the cash market flows are negligible. Rs 140 crore yesterday in the cash market is the lowest figure for this year as well.

Relentless shorting is going on in the Futures market, sometimes Rs 500 crore sometimes Rs 700 crore. Cumulatively, the Nifty Futures short number is not insignificant for the month of February. So, though directionally people are cautious about the market, but from a deployment perspective most investors will probably now see the Budget out and then take a call on whether to put in more money.

The index broke down from a range a few days back and I don’t think 5900 held out. We are just bobbing around that range, but the market has gone down to the 5850-5860 kind of levels as well. So I don’t think it is fair to say that the market is range bound right now. What has happened is that the market has come off from a trading range and before an important event it is probably reluctant to go down big time as  sometimes a Budget will have positive surprise and that’s what a lot of people are expecting. That should be able to lift sentiment.

If that happens, then shorts will be made to cover up their positions. Therefore, people don’t want to be very aggressive going into an event where they know that the finance minister knows how to surprise the market at least for 48 hours. So I think the broader market did not look too bad. It’s a period of a little bit of a pull back if you will. The market maybe a bit spent on the way down. There is no large scale selling happening. So my sense is this week you might see a bit of an absence of selling rather than any major buying. Whenever this happens, you see the market try to pull up a little bit and stabilise albeit at a lower level than where it fell off from.

That maybe true off the broader market this week where stocks recover somewhat and then start to consolidate because the selling has dried up. So it wouldn’t surprise me if the Nifty formed a bit of a narrow range which is not durable of that low of 5850-5860 and say for lack of a better level - 6000 on the way up. Within this 150 point on low volumes, it just ambles around and the stocks which have fallen the most over the last two-three weeks sort of stabilise and revert a little bit to their mean. That may not mean that their pain is over but at least for the moment, the selling would have abated and therefore they would probably form a bit of a respectable range before the Budget. So that could be one scenario that the market pauses, goes sideways on lower volumes and then waits for the event to provide a fresh impetus one way or the other next week.

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