CAN JAITLEY’S LOW EXPECTATION BUDGET SPRING A SURPRISE?

CAN JAITLEY’S LOW EXPECTATION BUDGET SPRING A SURPRISE?

WORLD MARKETS                             

After a positive start on Friday, Dow and S & P 500 saw a sustained downward move through the session to end lower by 0.3% and 0.2% respectively as oil reversed earlier gains and inflation data increased expectations for a rate hike in the coming year. Nasdeq managed to gain 0.2%.

Fed's preferred inflation measure, the core personal consumption expenditures price index, which excludes food and energy, rose 1.7% in January, the largest since July 2014. The second revision on fourth-quarter gross domestic product showed a growth of 1%, higher than the initially reported 0.7% figure.

Nymex oil April future, after reaching near $35 level, retreated to end lower by 29 cents at $32.78 a barrel.

Dollar index rose 0.9%. Pound sterling fell below $1.3900 to hit lowest level since March 2009. Gold fell $18 to $1220 an ounce.

European markets, buoyed by a recovery in mining stocks and oil prices, soared 1.4%-2.2%. Also boosting the sentiment were comments from the PBOB head that the central bank still has policy tools available to combat any downside risks to the economy, highlighting potential further easing.

For the week however, US indices ended with gains of 1.5%-1.9%. European markets gained 1.3%-3.4%. Nymex oil rose 3.4% while Brent climbed 6.3%.

AT HOME

On Friday, after a gap up opening, benchmark indices gave away most of the gains in the morning trade, only to recoup most of the lost ground in the noon trade to end higher by eight tenth of a percent, breaking three-day losing streak. Sensex gained 178 points to settle at 23154 while Nifty ended at 7030, up 59 points. BSE mid-cap index gained 0.3% while the small-cap index lost 0.4%. BSE Metal index and Bankex gained 1.7% and 1.5% respectively, becoming top gainers among the sectoral indices while Telecom and Healthcare indices lost 0.7% and 0.3% respectively.

FIIs net sold stocks worth Rs 695 cr but net bought index futures and stock futures worth Rs 734 cr and 668 cr respectively. DIIs were net buyers to the tune of Rs 784 cr.

Rupee appreciated 9 paise to end at 68.62/$.

For the week, Sensex and Nifty lost 2.3% and 2.5% respectively.

Economic Survey for 2015-16, which was tabled in the Parliament today, projected a 7-7.5% GDP growth in next fiscal as against the 7.6% growth expected in current fiscal. It also said that the fiscal deficit target of 3.9% for 2015-16 seems achievable but containing it in 2016-17 will be a challenge on account of additional outgo towards 7th Pay Commission, One Rank One Pension and a slowing global economy.

OUTLOOK

Today morning, Shanghai and Hang Seng are down more than 3% and 1% respectively. Other Asian markets are flat to modestly higher and SGX Nifty is suggesting about 30 points lower opening for our market.

Finance Minister Arun Jaitley will present Union budget for FY17 in the Parliament today. Key number to watch out, as usual, would be fiscal deficit, which is expected to be kept at 3.5% of GDP, which in absolute terms will be around Rs 5.26 lac cr, down from last year's 5.5 lac cr. Net borrowings are expected at around Rs 4.8 lc cr. Gross borrowing figure 6.4-6.8 lac cr. Tax revenue growth is expected between 15-18% leading to revenue of Rs. 11-11.5 lc cr.

Stock market will keenly watch out for any changes in Long Term Capital Gains Tax, STT (Securities Transaction Tax) and DDT (Dividend Distribution Tax). There is fear that

On the PSU Bank space, bank recapitalization to the tune of Rs 30000-35000 cr is expected. Also any announcement on Stressed Assets Fund, Asset Reconstruction Company and bankruptcy code would be positive for banking space.

There is also expectation that 5% custom duty on crude oil might be reimposed which would be positive for ONGC and Cairn but negative for OMCs. Any reduction in cess on crude oil would be positive for ONGC and Oil India.

Other possible focus areas include reviving agriculture sector, launch of a mega healthcare scheme, statement of intent on new land leading policy and details on medium term fiscal roadmap.

Individual or sector specific announcement might include introduction of Green Tax, increase in import tariffs on ferrous/non-ferrous metal, increased allocation under Pradahn Mantri Sinchai Yojna.

For the individual tax payer, tax exemption limit might be raised from current Rs. 2.5 lac to 3.0 lac and housing interest exemption limit might be raised. Corporate tax rate might be cut from 30% to 29% and is expected to be accompanied with a roadmap on eliminating most of the incentives. Service tax might be raised from 14% to 16%.

Technically, as mentioned in Friday's report, 6960-7120 continues to be immediate range, a breach of which, on either side, is required for fresh direction. A breach of 6960 can take Nifty back to 6870 bottom made on 12th February. If 6870 is also taken out then 6650, the 68.2% retracement level of the entire 5119-9119 upmove, would be the next major target to eye.

On the flip side, a sustained trading above 7120 would generate a buy on the hourly chart and can take Nifty to around 7250, where the immediate previous top on the daily chart is placed.