ALL EYES ON BUDGET

ALL EYES ON BUDGET

WORLD MARKETS                             

Nasdaq ended marginally higher, S & P 500 lost 0.1% and Dow tumbled 0.5% yesterday.

Nasdaq Biotechnology ETF gained 2.8% after President Donald Trump met with several health care industry executives and talked about speeding up FDA approval. He also vowed to reduce the cost of drug prices and ensure foreign companies pay their fair share for drug development costs.

Trump's immigration ban continues to create public outcry across the world. Overnight, Trump fired the federal government's top lawyer after she denied implementing the travel restrictions.

In economic news, Employment Cost Index, the broadest measure of labor costs, increased 0.5% in fourth quarter after rising 0.6% in the third quarter. The Chicago PMI adjusted January index reading came in at 50.3, below December's 53.9. Consumer confidence hit 111.8, below an estimate of 113.

Dollar index fell 0.8% to 99.55. US treasuries gained with 10-year note yield falling to 2.44% and the short-term two-year note yield slipping to 1.2%.

US oil rose 18 cents to $52.81 per barrel and Brent was up 47 cents at $55.70. Gold added $15 to $1211 per ounce.

European markets fell 0.3%-1.3% with DAX leading the losses. Economic data was positive. Eurozone GDP grew at 1.7% in 2016, growing at a higher rate than the U.S. for the first time since 2008. Flash inflation data came in at 1.8% for January, up from 1.1% in December. Unemployment in the euro area fell to 9.6% in December down from 9.7% in November.

Earlier, the Bank of Japan announced it was keeping its monetary policy unchanged.

AT HOME

Sensex and Nifty ended lower by 0.7% and 0.8% respectively after a choppy trade, a day ahead of the Union Budget. Sensex lost 194 points to settle at 27656 while Nifty finished at 8561, down 71 points. BSE mid-cap and small-cap indices tumbled 1.1% and 1.03% respectively. Except a marginally higher FMCG index, all the BSE sectoral indices ended in red with IT and Teck indices leading the losses, down 3% and 2.5% respectively.

FIIs net sold stocks, index futures and stock futures worth Rs 533 cr, 320 cr and 996 cr respectively. DIIs were net buyers to the tune of Rs 237 cr.

Rupee appreciated 8 paise to end at 67.87/$.

ICICI Bank reported a 19% fall in third quarter profit at Rs 2442 cr with significant deterioration in asset quality. NII fell 1.6% to Rs 5363 cr. Gross NPA ratio rose 109 bps q-o-q to 7.91% and net NPA ratio rose 78 bps to 4.35%.

Bajaj Auto reported 4.7% fall in profit at Rs 925 cr. Revenue declined 4.1% to Rs 59500.

Software stocks tumbled after legislation was introduced in the US House of Representatives today mandating that the minimum salary of H-1B visa holders be doubled to $130,000.

Bharti Infratel extended the sharp fall to second day on fears that a merger between Vodafone India and Idea, if materialises, could dent company's revenue, whose towers are used by both Idea Cellular and Vodafone.

Economic Survey tabled in the Parliament yesterday expects GDP to grow at 6.75-7.5% in 2017-18, in a guarded forecast compared to estimated 7.1% in 2016-17. The survey sees demonetization risks to growth and cautions against rising crude prices that could fan inflation. It also advocates the roll-out of a universal basic income (UBI) scheme for the poor in India. The Survey said that fiscal activism embraced by advanced economies is not relevant for India and called for review of FRBM framework for a new public debt management policy.

OUTLOOK

Today morning Hang Seng is down 1%, other Asian markets are trading mixed with modest changes and SGX Nifty is suggesting about 25 points higher start for our market.

Finance Minister Arun Jaitley will present his third budget today which has a new date and railway budget included in it for the first time. It is expected that the original FY18 fiscal deficit target of 3% might be relaxed to 3.2%-3.3%. Another thing widely expected is the relaxation on the taxation front individuals as well as corporates. For individuals, the exemption limit might be raised from 2.5 lac to 3 lac. Corporate tax rate might be slashed by 1-2%. The budget is also expected to give timeline for the GST rollout. Market participants will keenly watch out for any changes to short-term and long-term capital gains tax regime. There are talks that long-term capital gains tax might be introduced or the definition of long-term can be extended to 2 or 3 years from current 1 year. On the spending side, agriculture, rural development, infrastructure, social sector, housing, digital are likely to get higher thrust.

Taking cues from the charts, 8460, the erstwhile resistance, is likely to act as the immediate support. Below 8460, 8327, the bottom made last week, would be the next important support to eye. On the way up, 8673, the top made last week, would be the immediate hurdle to eye above which 8740, 8800 and 8970 would be the upside targets to watch.

As usual, budget day brings a lot of volatility and traders are advised to use options route to take speculative positions. Portfolio hedging can be done by buying at-the-money puts and selling higher strike Nifty calls simultaneously.

The Fed is scheduled to release its latest policy decision today, with market participants largely expecting interest rates to remain unchanged.