The market reacted to the annual Budget with a near 2% dip in the headline NSE index on Thursday, but the fall in the banking sector was even more pronounced as composite stocks crumbled under the relentless bear hammering.
However, some recovery happened on Friday.
On the face of it, the Budget seemed to be fairly balanced and benevolent as it attempted to include weaker sections of society in the mainstream economic growth process.
However, there is a price to pay for such endeavours and the market dip indicated some of those concerns. For example, the robust disbursals allocated to farm loans saw a sell-off in banking stocks, especially PSUs, since farm loans are a high NPA sector.
The imposition of commodities turnover tax (CTT) may dampen trading sentiment on commexes in the absolute near term as transaction costs crimp the turnover of arbitragers.
However, activity is likely to pick up over time. The banking sector, particularly PSU lenders, will remain under pressure and barring technical pullbacks and relief rallies, the trend is downwards.
The power sector stocks are also under a bearish cloud in the near term and the outlook will remain under pressure for cigarette makers and hospitality companies.
Education and healthcare related stocks are likely to be beneficiaries and trickle-down benefits of the Budget may also be seen in select infrastructure stocks. On balance, the markets may dip before finding its feet and rallying again.
As far as levels are concerned, the Nifty may see meaningful support between the 5550 and 5600 levels, maybe after a short-term bounce before testing these levels. On the upside, the rally is likely to run into resistance at the 5775-5800 band if the index rallies to that extent.
The Bank Nifty is likely to witness higher volatility compared to the Nifty as the banking benchmark has declined nearly 12% from its recent peaks whereas the Nifty has surrendered ~7% from its highs. That fortifies the hypothesis that the bank index is likely to underperform the Nifty index.
The support for the Bank Nifty is likely to be seen at the 11250-11350 band in coming days, the level being possibly tested after a mild pullback.
The technology space is likely to remain an outperformer and barring routine profit taking after a spectacular display of relative strength, major draw-downs are unlikely unless the forex peg goes through a major change.
In the commodities space, agricultural commodities are likely to remain market outperformers as food grains, edible oils and pulses are likely to firm up with the advent of summer.
Since food price inflation is likely to remain obstinate, traders should focus on buying the far month futures on dips rather than commit funds to near month series and incur frequent rollover, statutory and execution costs.
Forex traders should attempt to bottom fish the dollar-rupee pair near the 53 levels as and when this level is seen in coming days/weeks.
The rupee is unlikely to gain significantly in the absolute near term with the current macro/micro outlook. All in all, volatility is likely to be higher, so all fresh exposure must be initiated on lower volumes only.
The writer is the author of A Traders Guide to Indian Commodity Markets – the first commodities trading guide in the country. He can be reached at email@example.com