Pre-Budget breather likely by diesel hike: Udayan

There are eight trading sessions to go before the Union Budget. So if there is going to be any pre-Budget activity or flurry in the market, this is the time for it, one way or the other. Earning season has come to an end, global markets are steady. We have not done very well over the last two weeks but let us see if there is little bit of juice left in the market before the big day next week.

Didn't get a good feeling with the way the last week closed, though. We have now fallen for three weeks on the trot; and the fact that we have erased all our gains this year is not great.  Friday was a weak closing, but at least it came off the lows of the day maybe partly because the market had a sense of the fuel price hike, which was coming. So, though it is still hanging in there around the 5,900 mark, it is not looking convincing at all and the broader market continues to tumble. As I said there are just eight trading sessions before the Union Budget, there has been no whiff of a rally. We are flat year to day now, so there have been no gains or progress in the market in 2013 despite getting USD 8 billion.
So, if the market now having dithered for so many weeks, wants to put in a little bit of an effort before the Budget, then this is the time. Do it and you will figure out if that can happen, otherwise it's a weak looking screen still.
The earning season has not given us any great fillip towards the last two weeks. The only positive is that there is no panic in the global market right now. There has been some apprehension that as the S&P heads towards its all time high, and the Dow Jones tries to stay above 14,000, there could be some ripples in the market and it might correct sharply. But that has not happened so far. So, there is no great risk-off in global markets that we need to content with so there is some breathing space from a global perspective. Tonight, the US markets are shut. So, we can and need to do our own thing without worrying about any major outflows at least just for the moment.
To be fair, policy has been batting for us, and just as promised, the fuel price hike has come through. This is very encouraging, because if had it not happened that would have been very negative going into the Budget. In fact, the FM's assumptions on any kind of subsidy for the next fiscal would have had not creditability if he did not put in this diesel price hike before the Union Budget, as everybody would have questioned it saying your fuel prices never went up, so what you talking about in terms of that subsidy number.
I think it was an imperative from a Budget perspective as well that we put in at least this hike and then see how things move as we get closer or wade through some of the state elections, which are coming up in the next few months.
There might still be a hiccup or two in the heavy state election months, but having said that, at least it's not a complete no go like petrol deregulation was a couple of years back. I think it is very encouraging from a market perspective that at least the first promise has been lived up to. The market may say that in most months, we will get diesel price hikes. Maybe in the odd month around the state election we just dither for a bit but that is okay, over the next 12-15 months before the next election if we can put in 10-12 hikes at least, and get diesel prices up by Rs 5-6, which erases more than half of the deficit, so at least some serious repair work would have been done.

So, this morning, you do not need to be skeptical. I think oil stocks should do well, they did well on Friday and even the stock market should have a good feeling about the diesel price hike as we walk in.
It is disturbing though to see what's happening with the money. There is a possibility of that it is beginning to dwindle.
Yes, the quantum of activity, the overall activity level, not just the sell figure or the buy figure but generally if you look at the FII and the DII figure in the cash market - that's dwindling down to those Rs 200-300 crore per day kind of a number. You can understand where this is coming from. Since the start of this year, nearly USD 8 billion has come in. The market has not gone anywhere. So after a while, people start wondering what's happening. Local investors remain skeptical, a very mixed earning season has gone by, macro numbers are still not great, the money has come in and now we are approaching an important event. So I guess that's what's going on. A lot of the investors are now saying okay, let's sit back and watch what happens in the Budget, and then we will take it from there. But for now, deploying a lot more cash in a scenario where there is a constant supply of paper coming maybe is not such a prudent idea. But from a trading perspective as you pointed out, there is quite a bit of shorting which is going on practically everyday in the futures market, so I think the trading view over the last couple of days has turned a bit negative.
From a core inflation point of view, the flows have dwindled. None of this is very supportive for stock prices in the near term but fingers crossed on what can happen before the Budget, because we have already started seeing some news reports talking about FII investments in bonds, equity schemes, etc. So this will only increase over the next few days. Everyday you will hear some possibility in the Budget, and that, along with the fuel price hike might just keep the market a bit supported. We are talking about limiting downsides out here, not like sparking off any major rallies.