As the Narendra Modi-led NDA government is set to face a litmus test in the ensuing general election, the budget on February 2019 will holds immense importance to maximise the possibility of coming back to power for the second time.
The government is likely to leave no stone unturned to woo the voters through budget. Waning popularity of the NDA especially amongst the rural populace and most middle-class salaried professionals may compel the government to shower several sops, which would put pressure on fiscal discipline.
The government will go all out to address rural distress including improvement of farmers' income. We don't expect any improvement on fiscal deficit front until the next fiscal ending March 2020.
We expect the Indian equities to remain volatile with downward bias till the budget. Nonetheless, any positive surprise from the December 2018 quarterly earnings may not allow the market to witness any major correction.
In a nutshell, the market participants will closely watch out the repercussions of such populist measures on fiscal balances. At the same time, populist proposals may also result in buying in consumption, two-wheelers, cement, tractors and consumer durables stocks, which the investors should keep in their radar. While it is very unlikely but if there is any relaxation on securities transaction tax (STT) or long-term capital gain tax (LTCG) tax, it will be a big reason to cheer for the equity investors.
Meanwhile, the Nifty 50 index is trading in a band of 10,600-10,900 levels over the past six weeks and either side breakout will decide the next leg of up move for the market. We continue to remain positive on market, a breakout above 10,900 levels will lead the momentum to near 11,200 levels. On the other hand, the major trend reversal is placed at 10,450 levels below which the market will turn negative putting pressure on index pivotal and midcap indices.
Rajeev Srivastava is Head, Retail Broking at Reliance Securities