Expectations are high, but here’s why markets may crack on Budget Day

The Indian markets are riding high on expectations of a pragmatic Budget this time, which is expected to focus on reducing fiscal deficit, boosting growth and reviving the investment cycle.

The S&P BSE Sensex has already rallied a little over 1600 points or 6.7 per cent since June and over 22 per cent so far in the year 2014.

Now the real question in front of investors is - will the dream run continue for the markets post Budget? Well, the answer might not be as simple as a 'yes' or a 'no'. But, the direction for the markets remains on the upside.

Given the fact that there are lots of expectations from the government fuelling the rally, any disappointment may lead to a knee-jerk reaction on the Budget day itself.

"It is very true that the way we have seen the market move over the last two to three days, clearly talks about a pre-Budget rally. The sectors which are expected to have some positive announcements coming through in the Budget have been the participants in this rally," said Tushar Mahajan, Head-Derivatives (Listed F&O), Nomura India.

"But I would like to add a word of caution here that the more the market rallies before the Budget, the higher is the extent of disappointment that might come about if the Budget does not deliver even close to what the market is expecting," he added.

The Union Budget 2014-15 would be the first litmus test for the newly-elected NDA government which came to power with an overwhelming mandate - the best in the last three decades.

Most analysts on Dalal Street expect the NDA government to deliver a pragmatic and inclusive Budget interspersed with doses of 'bitter medicine', which could lay the foundation for growth and moderate inflation.

We are just four trading days away from the big event, but markets have run ahead of fundamentals and if there is any disappointment, markets may fall considerably on the Budget Day, fear analysts.

"The Budget is holding the market up and the gut feeling is that the Budget comes and the market could correct and then virtually everybody on the street, corporates included, maybe the media included, will say budget was good, but it came as per expectations," said Mehraboon Irani of Nirmal Bang Securities.

"Ultimately things will improve, but whether things will improve at the pace at which the market wants, is difficult to say. But we want everything to happen in a hurry and there could be some disappointment," he added.

So what should investors do with their portfolio?

Although the trend remains on the upside, with marginal corrections in between - analysts advice investors to remain stock specific and look for quality stocks in PSU, midcap stocks.

(source: economictimes.indiatimes.com)