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Volatility seen post Budget 2019, global macroeconomic activity and Fed rates to decide market direction

On the downside, support is established at 10,700 - 10,650. These are important for this move and a breach of these levels will see a downward move to take the index to lower levels of 10,200 - 10,250.

Mustafa Nadeem        Last Updated: January 22, 2019  | 10:40 IST
Volatility seen post Budget 2019, global macroeconomic activity and Fed rates to decide market direction

The Budget has always been an event when we expect volatility to expand with perception to safeguard the portfolio and hedge the overall risk in the market we see a lot of activity in the derivatives. This budget is no different than previous but the fact remains it is coming in an Election year.

The range for the market is likely to be in a range of 11,200 to 10,700 on the downside. So given the days left to budget, we expect the market to test 11,100 - 11,200 while only a decisive break beyond that we may see a next move since that would call in for a much aggressive rally that may be supported by short covering as well.  On the downside, support is established at 10,700 - 10,650. These are important for this move and a breach of these levels will see a downward move to take the index to lower levels of 10,200 - 10,250.

Markets are likely to see an expanded move though study suggests we may see a move higher that can take the market to higher levels of 11,100 - 11,150. We expect a halt at levels of 11,100 - 11,200 since it's a very strong resistance placed there. Historically, market has reacted to budget in a positive way except last year when global markets were hit by volatility.

Post Budget, we can see some profit booking as the rebalancing of the portfolio will be there and shifted to specific sectors and stocks that will be highlighted. Though the earnings outlook for most companies in Nifty 50 remains in double digits but we may see some margin pressure.  

The small-cap and midcap stocks have been beaten down due to lower earnings, rising pressure on margins hence we expect the rally to be participated largely by Blue chips with visible earnings growth. This makes our view specific on select stocks in 2019. Though the trend overall remains largely positive it would be prudent to utilize the dips.

Post Budget, we expect volatility to rise but the undertone of the trend may be visible due to the fact that a lot of news will be discounted in prices. A lot will also depend on global macroeconomic activity and Fed rates.

A tightening environment may dampen the outlook while soft crude prices shall continue to support the positive sentiment in Indian equity markets. Any change there might hamper the trend. Lastly, it all comes down to the mandate that is given in Lok Sabha as a decisive mandate brings a lot of money flow into the market for a longer time horizon that can help in a capital generation.

Mustafa Nadeem is CEO at Epic Research

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