With the budget out of the way, the lens is back on corporate earnings, RBI's policy and the rapidly spreading coronavirus.
While the budget has not gone down well with the market participants, the 300 points or 2.5% fall in the Nifty ranks among the highest on budget days. Part of the fall is attributed to the risk aversion that is currently gripping the global markets as corona virus fears escalate.
Then again, the budget has not provided the much-expected big stimulus, while it banks on big-ticket disinvestments that may be tricky.
The outbreak of coronavirus and its impact on the global supply chains and economic growth, on the other hand, is making investors wary. Further, some of the foreign participants who may have shied away from the markets on Saturday, will be back on Monday, and their reaction is awaited.
There is not much to expect from the Reserve Bank of India’s monetary policy statement scheduled on 6 February. A status quo on interest rates is expected. The recent increase in consumer price inflation does not provide for RBI room to lower interest rates.
Thankfully, while the gross and net borrowings projected in the budget are marginally higher, it won’t impact the bond market’s borrowing calculations. That should keep rates in the bond market steady, though the bond market reaction, which was closed on budget day, is also awaited.
“Gross market borrowing for next year at ₹7,81,000 crores are similarly in the ball-park expectation range, while no extra borrowing for the current year is an unequivocal positive surprise for the market," noted Suyash Choudhary, Head - Fixed Income, IDFC Asset Management.
The proposal to do away with exemptions in the new income tax slabs triggered a new set of worries for insurance and asset management companies. “The new direct taxes complicate the situation more than they resolved and would contribute a little surplus in the hands of the people," says Raghvendra Nath, managing director, Ladderup Wealth Management.
While the abolished dividend distribution tax would provide relief to foreign investors, it will hurt individuals and promoters as they would have to pay tax on dividends. “The budget’s intention is in right place. But markets have hoped for more, especially on the long term capital gains," says Vaibhav Sanghavi, co-chief executive officer, Avendus Capital Public Markets Alternate Strategies LLP.
The ongoing earnings season has not quite lived up to expectations so far. Some of the domestic growth numbers are quite poor. Tata Motors domestic business growth has been soft.
While the commentary coming from some of the FMCG players are not quite in sync with their lofty valuations.
In the coming week, some index biggies are also set to declare their results which include Bharti Airtel Ltd, Lupin Ltd, UPL Ltd, ACC Ltd, Tata Steel Ltd and NTPC Ltd.
Moreover, as the budget’s fine print sinks-in, markets may well realign their expectations. Further developments on the coronavirus will determine the equity market’s direction. “The markets are also being influenced by weak global markets and the coronavirus – which could be a bigger overhang next year," says Aditya Narain, head of research-institutional equities, Edelweiss Securities Ltd.