ALL EYES ON BUDGET

ALL EYES ON BUDGET

WORLD MARKETS

US markets were shut yesterday for the Independence Day holiday.

US oil fell 47 cents or 0.8% to $56.87 a barrel while Brent fell 31 cents or 0.5% to $63.51.

In Europe, FTSE fell 0.1% while DAX and CAC rose 0.1% and 0.03% respectively. Italy climbed 1% as it averted European Union disciplinary action over its public finances after convincing the European Commission that measures submitted this week would help bring its growing debt into line with EU fiscal rules.

Tensions between Washington and Tehran continued to escalate with US President Trump telling Iran via Twitter that threats can “come back to bite you ” after Iranian President Hassan Rouhani announced that Iran would increase its uranium enrichment.

AT HOME

Benchmark indices ended higher by a fifth of  a percent after a range bound buy choppy session, extending the winning streak to fourth straight day. Sensex added 68 points to settle at 39908 while Nifty finished at 11946, up 30 points. BSE mid-cap index however fell 0.2% while small-cap index gained 0.1%. BSE Consumer Durable and Metal indices tumbled 1.6% and 1.1% respectively, becoming top losers among the sectoral indices while Telecom index climbed 1.5%, becoming top gainer, followed by 0.9% higher Realty index.

FIIs net sold stocks and index futures worth Rs 29 cr and 4 cr respectively but net bought stock futures worth Rs 313 cr. DIIs were net buyers to the tune of Rs 59 cr.

Rupee closed at 68.50/$, appreciating 41 paise compared to previous close.

Finance Minister Nirmala Sitharaman tabled Economic Survey in the Parliament. Broadly, the survey says the key to become a $5 trillion economy by 2025 is a virtuous cycle of saving, investment, exports, etc. It says private investments are extremely important to accelerate and sustain the growth, but the challenge the economy is facing at the moment is lower savings to GDP ratio. It projected Indian economy to expand at 7% this fiscal as against 6.8% growth clocked in last fiscal. The survey also said that investment rate seems to have bottomed out and bet for higher GDP growth in FY20 on stable macroeconomic condition. It added that accommodative MPC policy will help cut real lending rates.

OUTLOOK

Today morning, Asian markets are trading little changed and SGX Nifty is suggesting a flattish start for our market.

Big event to watch out today would be maiden budget of Finance Minister Nirmala Sitharaman. Key thing to watch out in the budget would be balancing between growth and fiscal prudence. India's economic growth fell to 5.8% in January-March quarter, the lowest in 20 quarters while FY19 GDP growth stood at 6.8%, its lowest in the last 5 years.

Obviously, to boost the growth, government needs to spend more. But unfortunately, revenue growth has been disappointing. FY19 tax revenue growth was just 8% against estimate of 17%. So, it is expected that there would be some compromise with the fiscal deficit and the same for the FY19-20 can go up to 3.5% or may be even 3.6% as against 3.4% intended originally.

Markets will also watch out for the internals of fiscal deficit calculation, viz. revenue growth and expenditure to guage the credibility of fiscal deficit figures. Also will be watched gross borrowing figures.

It is expected that to boost the growth there will be focus on infrastructure, housing, agri/rural income growth and consumption.

It remains to be seen whether income tax slab is tweaked or additional deductions are allowed to provide more money in the hands of the people, which in turn will boost demand and prompt industry to raise production.

Another area to watch out would be corporate tax rate. There is also pressure on the Finance Minister to lower the corporate tax for remaining one per cent of the assesses i.e. big companies. Such a move will definitely encourage investment.

There is also demand for reviewing the long-term capital gain tax (LTCG) and dividend distribution tax (DDT). While chances of relief on the same are less, markets would cheer the move if it comes.

Coming to Nifty levels, readers would recall that after Nifty took out 11850 hurdle, we had given upside targets of 11911, 12000 and 12103 and have been advising holding on to long positions with a trailing stop-loss.

Nifty, after achieving 11911 target on Tuesday, touched a high of 11969 yesterday before closing at 11946, moving towards 12000 mark.

12000, followed by 12103, which are the tops made on 11 and 3 June respectively, continue to be upside targets to eye.

Immediate support on the hourly chart has moved up to 11860, with the stop-loss of which, trading longs should be held on to.