All Eyes on Budget 2020 – Weekly Market Newsletter

All Eyes on Budget 2020 – Weekly Market Newsletter

Market Overview

After a strong run in the recent past, the Indian markets witnessed some profit-taking at higher levels during the week. The sell-off was largely triggered by disappointing earnings for select Nifty majors. Further, the global markets also witnessed sell-off as the outbreak of coronavirus led the investors to turn risk-averse. However, healthy buying interest in the latter half of the week restricted further downside for the markets. Nonetheless, the Nifty and Sensex ended lower by 0.8% each. The broader markets have been a clear outperformer since the start of the year and rightly so, as early signs of economic recovery and valuation comfort have led to a shift in investor interest to broader markets. This week was no different as both Midcap and Smallcap indices ended with gains of 0.7% and 0.9% respectively.

Amongst the sectors, Banking has been a clear underperformer over the past two weeks due to higher than expected inflation, Supreme Court decision on Telecoms to pay AGR dues, disappointing earnings and possibility of fiscal slippage in the upcoming budget. Other sectors that ended with losses were Auto, Metal, and Oil & Gas. The sectors that ended with decent gains were Capital Goods, Consumer Durables, Healthcare and FMCG. On the fund flow front, FIIs were net buyers pumping in nearly Rs. 1,800 cr during the week whereas DIIs net sold Rs. 2,600 cr.

Market Outlook

We expect the positive momentum witnessed towards the latter half of the week to continue in coming sessions as strong earnings from Axis Bank and ICICI Bank would see some buying interest. Further, market participants would start pinning hopes on several government measures to revive the economy. The earnings announcement from companies would increase stock-specific volatility. This would aid positive momentum for the markets. On the global front, updates on coronavirus would be a key monitorable as if the outbreak spreads faster, we could see selling pressure in global equity markets including India.

The early signs of economic recovery are visible; however, sustenance would be a key trigger for the markets. Further, the markets are pricing a lot of positives including economic revival and anticipation of a big bang budget (Read More for our budget expectations). We do not believe the government has enough fiscal space to provide a stimulus package. The earnings announcements from select large caps have also been disappointing. Therefore, we remain cautious on the markets for the next 4-5 months. Therefore, the prudent approach would be to invest in stocks that offer value as the downside would be limited if things don’t go according to expectations.

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