What goes up fast also comes down quickly. The Bombay Stock Exchange's benchmark Sensex lost nearly two per cent on Tuesday following the disappointment from the rail budget for 2014/15. The market had run up on big hopes from the Budget (including rail budget) that saw the Sensex crossing the 26,000 mark, and players offloaded their positions after the rail budget didn't meet their expectations.
RAIL BUDGET 2014:Key Highlights
If one thought there was nothing to cheer about the rail budget, one might be wrong. In fact, there are lots of positives. First, it showed that the government is focused on fiscal prudence and is going to ensure that the fiscal deficit doesn't go out of control, so spending has to be controlled. Second, if one thought Railway Minister D.V. Sadananda Gowda didn't bite the bullet as he presented the budget, the government had already increased fares last month.
What the market wanted to see was if the rail budget addressed the issue of revenues so that Indian Railways doesn't have a problem to run. This may not have been addressed completely, but the government has not made many frivolous expenses.
The minister may have not have announced many new projects but he has focused on improving the existing ones. Though Indian markets would have expected the minister to improve service for the masses rather than focus on ambitious projects such as bullet trains, the overall rail budget was not as bad as the market reacted.
While the big event this week is the general budget on Thursday, stock markets will also look at corporate earnings for cues. Among the big companies to announce first-quarter results this week are IndusInd Bank and Infosys, which will announce earnings on Wednesday and Friday, respectively.
Market participants are also divided whether Indian equities are expensive. I.V. Subramaniam, Managing Director and Chief Investment Officer at Quantum Advisor, says the markets look expensive at current levels. Subramaniam is keeping close to 25 per cent in cash in his equity portfolio. But he adds that, if the market corrects, he may be comfortable in picking his bets across market caps. On the other hand, Mark McFarland, Chief Economist at RBS Wealth Division, says India is still cheaper compared with developed markets.
India is no more an independent market and is influenced by a lot of variables such as the external environment, local economic issues and currency movements.
The only people who will make money are those who are long-term investors and who stick to companies with strong fundamentals (a zero-debt company, for instance). Most importantly, the markets are still not euphoric and a correction should be considered healthy for the markets.