The markets corrected for the third consecutive week though there has been a very sharp recovery from the lows on Wednesday. The BSE Sensex recovered from 17,008.57 points to close at 17,503.24 points, down by a mere 133 points, while the NSE Nifty recovered from a low of 5,171.45 to close at 5,333.55 points, a loss of 25.80 points.
The big event of the week was the election results from the five states and the Congress was the biggest loser. The party will come under pressure from its allies and Opposition parties for early general elections and the Union Budget becomes all the more important after the election results.
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With this objective in mind, the Reserve Bank of India (RBI) has cut cash reserve ratio (CRR) by 75 basis points with effect from Saturday, March 10. This would be enough for the markets to open with an upside gap on Monday even though there was talk of this happening during the day. The CRR cut would release Rs 48,000 crore into the liquidity-starved system. The current week will be action packed and subject to volatile movements. The Index of Industrial Production (IIP) data will be released on Monday, Railway Budget presented on Wednesday, Credit Policy on Thursday along with the Economic Survey and finally Union Budget on Friday.
Last year, one day before the Budget, the Sensex had closed at 17,700 points and rallied to 18,486 points during the week. Thereafter, the markets drifted over the next 15 days and nothing much happened. Subsequently, the markets rallied to touch 19,600 points by the first week of April and then slowly but steadily started drifting and falling. What the Budget would have in store or more important how the week pans out is very important. Various stakeholders have expectations from the Budget which, considering the precarious fiscal imbalance, look unlikely to be met.
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Foreign institutional investors brought in just over Rs 1000 cr while domestic institutions sold a little over Rs 300 cr. Liquidity is and will continue to be the big driver. Friday also saw the listing of India's first stock exchange with MCX, the commodity exchange, being listed at the BSE and allowed to trade in 'Permitted to Trade' category at the NSE. The stock closed with gains of Rs 265, or 25.68 per cent, to close at Rs 1,297 points against the issue price of Rs 1,032. It was a decent gain for investors who have had the opportunity to invest in an IPO for the first time this year.
The markets would be volatile and open with positive gains on account of the CRR cut. There will now be expectations of a rate cut in the credit policy, which will be announced on Thursday, and it would keep the markets volatile. It would make sense to ride the pre-Budget rally till Thursday or Friday morning pre-Budget period and then allow the markets to react. Trade cautiously as the week would be very volatile.
Arun Kejriwal is the founder and director of Mumbai-based Kejriwal Research and Investment Services (KRIS)