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Consolidation or correction before Budget? Experts debate

Manu Kaushik

Tuesday marked the end to a three day Santa rally on the bourses but some volatility cannot be ruled out owing to expiry of the December series futures and options contracts, which is slated to happen on Wednesday as market will be shut on Thursday for Christmas.

Market is likely to consolidate going forward feels Mahantesh Sabarad, Dy. VP (Research) from SBICAP Securities Ltd. He said concerns in terms of macro data like IIP still remain and nothing positive has come out from the winter session of Parliament to boost sentiment. Sabarad however did not rule out incremental gains ahead of the budget session while his peer Andew Holland sees volatility in January owing to global factors and wants government to step up on the reform agenda to have a buffer against global weakness.

“Normally every year there is a budget rally that happens. So we will see some kind of attempt to cross the recent highs that the market had achieved in late November. But then broadly the trend seems to suggest that we will consolidate for a while before a reform push come the economy starts repairing itself,” Sabarad said.

Volatility in the commodity and forex markets that grappled much of the news headlines in 2014, is expected to continue in early 2015 as well owing to lack of demand and geopolitical risks and will continue to rattle global stocks.
Speaking with CNBC-TV18, Andrew Holland-CEO, Ambit securities on Tuesday said demand shock from China reflected in commodities and forex market and is set to continue in January 2015. This in turn will have its bearing on equity markets too.

Oil prices are down more than 40 percent since June 2014 and a reuters report estimated that energy companies globally will cut investments in new projects by over 25 percent in 2015. This has bearing on oil drilling companies in India too; 11 out of 19 oil drilling companies listed on the BSE have given negative returns over last six months. Aban Offshore, Asian Oilfield, Cairn India, Deep Industries, HOEC, Interlink Petro, Jindal Drilling, Oil India, ONGC, Sah Petroleums, Selan Explore and Shiv Vani Oil are down between 19-68 percent in the last six months.

20 out of 25 metal and mining companies listed on the BSE exhibit a similar trend. Out of the pack, Sesa Sterlite, Parab Infra, Orissa Minerals,Indian Metals, Impex FerroTech have dipped 17-65 percent over last 6 months.

Holland is of the view that market won’t have any buffer for support against volatility in global markets unless the government continues to push forward with its reform agenda.

It wasn’t all ruckus and no work in the winter session of the parliament as the government managed to introduce the constitutional amendment bill paving the way for GST, the companies act (amendment) bill. But other important bills such as insurance bill and coal mines fell pray to disruptive politics. The government is most likely to take the ordinance route to move the feels Anil Padmanabhan, deputy managing editor of Mint. 

Holland sees Nifty at 9000 levels by budget based on 50bps rate cut expectations which he sees happeing in the first quarter of 2015 and a 100bps cut if oil prices continue to linger at current levels.

BoAML agrees that a rate cut is important for markets and for economic recovery in 2015; expects government Rajan to cut rates by 25 bps on Febrauary 3. “The December policy was dovish in line with our expectation that the RBI will find the balance of risks to its January 2016 6% inflation target to be neutral relative to the September policy that stated upside risks,” said BoAML in it’s recent report. 
On earnings, Holland expects some negative surprises in Q3 earnings. “We are expecting around 12-15 percent earnings growth this quarter,” he added.

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