Stock Market

Budget 2017, earnings, auto sales to set tone for market

Exactly a month ago, the Nifty had made an intermediate bottom at around 7,900 levels following a demonetisation-triggered correction.

It has since witnessed a breath-taking rally — having risen nearly 8 percent — the fate of which may be decided this week when the Union Budget is presented on Wednesday (February 1).

The rally has not just been driven by expectations from the Budget, which many expect will be the balm the Narendra Modi government applies following the difficult, ‘sacrificial’ demonetisation exercise.

The December quarter’s earnings numbers have been stable, even better than expected in some cases. The spate of important earnings releases is set to continue during the week.

Equities will also focus on auto sales numbers for January, which will offer cues into whether demand is returning post the cash ban.

Budget expectations

Optimism over the Budget remains high, with the government expected to provide stimulus to the economy to counter any slowdown caused by demonetisation. Reports are abuzz that Finance Minister Arun Jaitley may widen social sector schemes, ease income tax rules and attempt to give a boost to areas such as digital payments, infrastructure and affordable housing.

Compared to many past years, the government is sitting on a slightly better fiscal condition, with the deficit seemingly under control and with tax collections buoyed by demonetisation.

“Markets are expecting the Finance Minister Arun Jaitley to increase public spends and grant benefits on direct taxes front even at the cost of fiscal rectitude,” Dipen Shah of Kotak Securities said.

However, the Budget may also come as a bit of a shocker for the stock market in particular: the contentious GAAR (general anti-avoidance rule) is almost confirmed to be rolled out from the next year while some tinkering with the long-term capital gains tax may be expected.

Notwithstanding that, some analysts are hopeful the market will continue to head higher, regardless of what the Budget offers.

“The market may consolidate for the two trading sessions right before the Budget but the event will not be able to reverse the strong trend seen,” technical analyst Ashwani Gujral told CNBC-TV18.

Earnings to watch

Soon after the Budget, attention will also shift to earnings releases. So far, earnings of blue chip companies such as ITC, HDFC Bank, Kotak Mahindra Bank, HCL Technologies, HUL, Maruti Suzuki have been mostly stable.

Important earnings this week are:
January 30: HDFC, Shree Cements, Tech Mahindra, Grasim
January 31: ONGC, IOC, ICICI Bank, Bajaj Auto, Dabur India, Oil India, InterGlobe Aviation
February 1: Eicher Motors, Apollo Tyres, Cummins, Pidilite Industries
February 2: Glenmark Pharma, HCC, Vijaya Bank, Godrej Properties
February 3: ACC, Torrent Pharma, Jet Airways, PVR
February 4: Dr Reddy’s Labs

Finally, Indian markets will also keep an eye on overseas developments, especially announcements made by Donald Trump. The newly-installed US President has so far received a positive reception from equities even as some of his policy positions run the risk of ratcheting up global geopolitical tensions.