Narendra Modi-led NDA government is all set to appear for its examination to qualify for the next term in power. Though the incumbent government’s last budget gives it little or no scope to introduce any major reforms, it’s importance in gaining and maintaining popularity cannot be undermined.
Rural India’s disappointment with the NDA government was seen in the state election results held last year. Sentiments of most of the salaried middle-class population are also dim.
The incumbent Modi government will try everything possible to tempt this large part of their vote bank. Many populist measures may, therefore, can be expected. Income Tax reforms, generation of employment and agricultural reforms are expected to be the theme of the budget speech. Overall the budget could be seen as an election manifesto in disguise, showcasing its past efforts and projection a positive picture for “acche din” in the next five years.
While the market participants will keep an eye on the announcements made in the budget, they have little or no expectations from the budget, as far as the measures related to the business environment is concerned.
The market will have a reason to cheer only if reforms related to relaxation of securities transaction tax (STT) or long term capital gain (LTCG) tax, is introduced. However, this is highly unlikely. Therefore the interim budget 2019 is going to be a one-day event for the Indian stock market. After an initial reaction, it will be driven mostly by the important macro development.
International bodies like the World Bank and International Monetary Fund (IMF) have painted a gloomy picture for global economic growth for upcoming fiscal years, in their recent reports. Adding to the woes is the industrial data and sales figures that indicate a sluggish growth in the upcoming months. The upcoming Lok Sabha elections will be a major determinant of the market direction. Market participants will keep under the radar the international trade tension and monetary measures by the central banks of major economies.
SECTOR UNDER RADAR
As mentioned earlier, the government might announce some alluring measures like changes in Income tax slab for the middle-class professionals or some kind of populist measure for the distress farming sector, before elections. This would be short term booster for consumption stocks. It may result in increased buying in consumption sector stocks like two-wheeler, cement, tractors, and other consumer durable stocks. Apart from consumption stock, we are not expecting any major announcement for any sector.
TECHNICAL ANALYSIS
In one of our articles titled Indian Stock Market Forecast 2019, published last month we clearly mentioned that if Nifty closes above 11200 and Bank Nifty closes above 27000 on monthly basis, then we could see a big rally in the market. Now in the month of December Banknifty did closes above 27000 but nifty didn’t close above 11200. As a result of which market remained range bound for the entire January month.
As we mentioned, overall budget would be an only one-day event for the Indian stock market and afterward movement of the market would depend on international events as well as hints from the upcoming Lok Sabha elections.
Technical analysis of the market would remain the same. Nifty must close above 11200 levels on monthly basis. If we manage to closes above 11200 mark on a monthly basis then we would see new life high for market sooner.
