Indian Union Budget: Magic Monday or Maniac Monday for Stock Markets?

Indian Stock Market

It is no surprise that Stock Market reaction is considered the barometer of the impact of Union Budget on India Inc. They are the first ones to act and their direction to some extent signifies if the budget has met the expectations. Also, if history is to be believed, the Indian Indices have always traded with high volatility on budget days.

This can be attributed to the high positive/negative expectations that are formed in the build up to the budget. Infact, the day the election results were announced and UPA came out with flying colors, we hardly had an hour of trading. The markets got locked at upper circuits more than twice and the trading halted.

So, if anything Monday is going to be an exciting day for the Stock Markets.

Which way will the Market go?? Now, that is anyone’s guess.

But, if the recent Economic Survey report is anything to go by, I am expecting a good positive reaction from the Stock Markets. But then, I have always been Bullish when it comes to Indian Indices, so take my opinion with a pinch of salt.

However, The Economic Survey report DID expose the areas that need to be addressed in the budget and they are pretty much symbolic with the Corporate sector as well as the Mango Man a.k.a the aam admi.

Arun had earlier published the India Economic Survey 2009 – Analysis and Full Report, which basically summed up the major expectations from the Union Budget on Monday. So, taking a cue from that, here is in attempt to map those expectations with the Stock Markets and the major stocks that might witness huge price fluctuations.

Focus On Infrastructure:

Indian Infrastructure

This has been the most talked about sector ever since the new government came to power. Infact, if we take the performance of the major Infra Stocks in the Stock Markets, we have seen huge gains. Stocks like Shobha Developers, JP Associates have gone from nowhere to now here – Infra has alone jumped over 40-50% post election till the run up to the elections. Why you ask? Well it might be difficult to have a rationale when talking about Stock Markets, but then what better than the Finance Minister himself stating,

“Infrastructure is to get adequate attention. I do believe that massive investment in infrastructure would help us to come back to the growth trajectory. We need to review resources, delivery systems to the core sector.”

Moreover, Reliance Mutual Fund came out with their Infrastructure fund recently and it clear that the AMC managers are betting big on the Infra Stocks to gain momentum going forward.

But, the scenario here is a little dicey! Infra Stocks have already had a bull ride in recent months. So, a below expectation budget in terms of Infra could mean a huge downside in the Infra sector. So, Infra Stocks can go for a toss if the budget does not dish out positive reforms in the Infrastructure Sector.

Stocks To Watch Out For :

GMR Infrastructure(GMRINFRA)
Unitech(UNITECH)

Reforms in the Subsidy cap for Sectors like Sugar, Fertilizers:

This is one sector which is totally controlled by the government. From setting up a factory to fixing the retail price, there is not much the manufacturers can do. As the reform pointed out, instead of subsidizing the manufacturer, the government should de-regulate the prices and instead pass on the advantage to the consumer directly. If the budget is able to address this issue in a positive way, these sectoral stocks could rally big time.

Stocks To Watch Out For:

Gujarat NRE Coke,
Nagarjuna Fertilizers,
Renuka Sugar

Besides the sector based stocks, the reforms mentioned in the Economic Survey could seriously enlighten the moods of the Indian Stock Markets if implemented in the Budget:

Disinvestment In Public Sector :

This could fill the over tightening cash registers of the Government to a great extent.Disinvestment would infuse more liquidity in the market, inviting more players to participate in taking the ownership of the companies.

Easing The FDI regulations in Defence, Retail Sector :

This again has been a debatable issue for a long time.With the FDI comes more foreign reserves in India and moreover, entry of new players makes it more challenging for existing players to ramp up their product/service line. So, expect the Stock Markets to react bullish on the easing the FDI cap.

Huge Tax Reforms(personal and Business) :

This could well determine the movement of Stock Markets on a medium to long term basis. The survey asked for a new Income Tab Slab which could provide the average Investor with more money to put in the markets. Moreover, doing away with certain taxes like Cess etc. on products could prove a win-win for both the buyer and the seller.

More cash in hand is always a candidate for landing up in the Equity Markets

But, this way or that way, i am expecting a lot of volatility on Monday.I would not be surprised if we witness halt in trading on account of upper/lower circuits being hit.

So, if you are going to place your bets to make advantage of the Monday Trade, ensure that you have strict Target and Stop Loss Prices set in for all the trades.

If you don’t do it at the first attempt, then be ready to lose a lot of money or on an optimistic note, making no profit out of the volatile Monday.

PS:: Since 2000, Five out of nine times the Sensex reacted negatively to the Union Budget.

PPS:: The opinions shared here are solely mine and I might have positions in the mentioned stocks. The information shared here is not be considered as Investment advice of any sort.

[The post has been written by an anonymous guest blogger, who is working in the field of Finance and Stock Markets]

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Author: Arun Prabhudesai

Arun Prabhudesai is founder / chief editor at trak.in. He jumped the Entrepreneurship bandwagon in early 2008 after a long 13 year stint in I.T Industry. You can follow him on twitter @trakin or get in touch with him at admin-at-trak-dot-in or 91.9822575676.

Indian Union Budget: Magic Monday or Maniac Monday for Stock Markets?

Tagged as: Disinvestment, economic reforms, Effects of Union Budget, FDI Regulations, Indian Policy Decisions, Indian Union Budget 2009, Indian-Stock-market, infrastructure-in-India, Sensex in India, Stock Investment, Subsidy Caps

{ 3 comments… read them below or add one }

1 sarath July 6, 2009 at 4:07 am: Watch Union Budget 2009 Live Streaming
2 Philip July 6, 2009 at 6:01 am: There is terrible optimism everywhere that the budget is going to do wonders for the economy. I have a hunch that the optimists would be disappointed. There is only this much that the FM can do. People are never satisfied anyway.
Even if the markets go down today, over a period of time we are looking at a 20-30 year bull market for the Indian markets.
3 Anonymous July 6, 2009 at 9:01 am: Agree with you @philip on the optimism with the budget.However, it is the Monday Stock market that i had in mind.
There will be volatility which will hit the roof today.There is always a tendency to get into trades when something this big as the budget is gonna be announced.
In fact, given the history if the markets are gonna go down, there is a real chance of making money today by going short.
So, the idea is to be the bull every single day if the risk apetite is right and a person can follow the price.
Cos, as someone said, ‘there is always a bull market somewhere’.
Moreover, the stocks i mentioned are all high volume, medium term stocks which swing on government policies.