Seeing unnatural moves in the market over 3-4 sessions, Budget could reverse sentiment: Sushil Kedia

Sushil Kedia, founder, Kedianomics

• Kedia says Indian market weakness is not solely due to Trump's actions
• Budget likely to reverse market sentiment, not confirm current trend
• Indian market valuations have normalized after election-driven overvaluation

Did our AI summary help?

Suggesting the Indian markets' weakness is the result of U.S. President Donald Trump's decision is an imagination, said Sushil Kedia, founder of Kedianomics, in an interview with Moneycontrol's N Mahalakshmi. Instead, Kedia suggested that there are a multitude of factors coming together, leading to some "unnatural" market movement over the past few sessions.

The first is the upcoming Union Budget. Kedia argued that market behaviour ahead of the Union Budget has historically been misunderstood. Citing data from roughly 45 Budgets, including interim ones, he noted that there have been only three instances where markets rose strongly before the Budget and continued to move higher afterwards.

“There is not a single event where the market was strongly down before the budget and continued to go down,” he said. As a result of this pattern, there is a high probability that the Budget acts as a sentiment reverser rather than a trend confirmer.

“In plain and simple words, the stock market has been an abject failure in India to anticipate the budget. The budget is a game changer for the market,” Kedia added. "It is safe to say there is a 93 percent chance that the Budget may reverse market sentiments."

Further, Kedia noted that U.S. President Donald Trump has been rattling markets across the world, not just in India. However, global markets seem to absorb the impact, while the Indian markets are seeing such prolonged weakness. "So, India's weakness is only because of Trump is, I think, an imagination. That's my take," he argued.

Additionally, ahead of the general elections in 2024, there was a strong mania in "Modi stocks," leading them to be "not richly, but ridiculously overvalued," said Kedia. However, "the bubble was punctured following the election results." For a while, the indices were not had been displaying such damage, but since September 2024 to today, almost across the board one can say that there has been a deep damage already. Kedia added that the indices are hiding that damage so that India's overvaluation vis-a-vis the rest of the global peers for has been reset, with India's PE valuation normalising.

Kedia also noted that over the last couple of days, there has been some "unnatural" movement in the market, "as if some informed selling is going on; maybe somebody is expecting some very India-specific negative news, whether a situation of war or a political turmoil," he mentioned.

Whenever such events have happened, if at all something like that comes around to happen, Kedia said, "If the market already has seen informed selling. Following this, the catharsis of the weak man happens when the news is released. So the last man left on the street is going to react, the big boys have already done their  action."

If negative news were to emerge, he believes much of the damage may already be priced in. “I am anticipating any time now ahead of the budget, a final capitulation and therefore a market bottom,” he said, adding that a strong post Budget recovery could follow.

Watch the full video here:

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.