Stimulus rollback priced in

It’s that time of the year when markets tend to have a lot of expectations from the central government. However, this time round, this does not seem to be the case. Market participants are not too bullish and have priced in a stimulus roll-back. Investors globally are also getting into risk-aversion mode driven by weak global macros.

The month leading to the Budget so far this year has seen the markets giving negative returns of 4.40%. This is in contrast to last 10 Budgets, of which the Sensex has gone up in 7 instances.

Experts believe markets would remain under pressure till the Budget as players seek clarity on various reforms.

“From the macro perspective, we would like to have clarity on how government plugs its fiscal deficit and takes forward fiscal consolidation. On the reforms side, the roadmap for implementation of general sales tax and direct tax code would be watched out for. Also, the extent of roll back of fiscal stimulus and reversal of excise-duty cuts is playing on markets,” said Gaurav Dua, head research at brokerage firm Sharekhan.

The markets have also seen pressure on account of selling by foreign institutional investors. There have been concerns over monetary tightening by China, issues related to sovereign risk in southern parts of Europe, and curbs by the US government on proprietary trading by banks.

“Globally, markets are showing weakness and this is reflected in the Indian markets as well. Global cues will continue to impact market direction in India,” said Jyoti Vaswani, chief investment officer at Aviva Life Insurance.

FIIs have been net sellers on all but 3 days since January 19, 2010, leading to total outflows of more than Rs 10,000 crore during this period.

Experts see markets rangebound in the first half of this year on account of headwinds in the form of liquidity tightening measures globally, a slew of primary issue and rising domestic inflation.

“We would see a correction for the in the near term. We would not see markets break recent highs in short term,” said Vijay Kedia, director, Kedia Securities.

However the long term attractiveness of Indian markets stays, with earnings growth for Sensex companies seen at around 20% over next two years.

“We expect earnings for Sensex for FY11E & FY12E to be at 1070 and 1260 respectively,” said Hitesh Agrawal, head of research at Angel Broking.