Market expensive, needs new legs; Budget Session key: Kotak

The market looks expensive as India's improved macro position is yet to translate into earnings, feels broking firm Kotak Securities.

Kotak sees downside risks to its earnings estimates for FY16, particularly it's volume and profitability assumptions for sectors like auto, cement and capital goods unless there is a meaningful pick-up in economic activity.

"Given the market's heightened expectations from the Budget and five important economic bills before the Parliament, the Budget Session of Parliament is likely to set the tone for the market for the next few months," says the Kotak note to clients.

Kotak feels the market may need additional positive news to sustain at current levels or to perform, given the high expectations around economic reforms and further improvement in the macroeconomic environment.

"The government's ability to implement reforms will be tested in the forthcoming session of Parliament as it will attempt to convert four ordinances into legislations and also steer the GST constitutional amendment bill," says the Kotak note.

Kotak feels any uncertainty regarding the passage of bills "could unnerve the market".

Lastly, Kotak also cites a rebound in crude oil prices as a key risk.

"A rebound in crude price to USD 80/bl and above will cramp the government's ability to provide fiscal stimulus and also restrict the RBI's flexibility to cut policy rates," the Kotak note says.