Sensex charts indicate positive move next week

Vikrant Shah

MUMBAI: We witnessed a range-bound trading in the pre-budget week as the markets remained indecisive. The Sensex settled at 19,317, losing 151.14 points in a week, while the Nifty settled at 5,850.30, losing 37.10 points.

On a weekly chart of Sensex, prices have broken the 9 months’ rising trend line at 19,500 while a negative crossover is visible on MACD. But on an intraday chart, a tweezers bottom reversal formation is visible, which indicates a positive move next week. The next week move will depend on the budget.

On a daily chart of Nifty, the head and shoulder formation is visible where the top of left shoulder lies at 5,965, head lies at 6,111 and right shoulder lies at the high of this week at 5,921. The 5,820 holds the neckline, a close below the same could reverse the trend. In case the budget is unfavorably, the market could correct sharply. The strategy of wait and watch could be the best for next week.
Currently investors' focus is on the Union Budget and the economic reforms that the government announces to revive weak investment growth. We believe this year’s Union Budget will focus on economic revival and more importantly limiting the fiscal deficit at 4.8 per cent in the next FY as already pointed out by FM.

So far the government has taken some reform initiatives and also taken steps to curtail expenditure as well as subsidies. Thus we do not have any major expectations from the budget on the policy front which could surprise positively. There may be a lot of uncertainties about the economy, but the PM has been making a lot of positive statements in the run up to the Budget, whether it is related to growth rate or curtailing the deficit. This time we have the Futures & Options expiry and Budget announcement on the same day. So next week would be very crucial and volatile for the equity market.

On the capital market front, we expect the FM to increase the Rs.1 lakh limit for tax deductions to at least Rs.2 lakh for equity mutual funds. We also expect him to reduce STT on equities transaction and also from mutual funds which will reduce cost and thus increase participation.

On the taxes front, we do not see GST implementation this time also, but a definitive roadmap towards GST will improve the sentiment as it boosts both the GDP and tax receipts in the long-term.

The critical reform Bill on DTC may get delayed further, as it has not been placed in the list of the Bills scheduled for consideration and passage during the Budget session. We expect some incentives for the infrastructure sector that is suffering due to multiple problems such as delays in clearances, poor project executions and leveraged balance sheets of infrastructure companies.

Reintroduction of infrastructure bonds should arrange cheap credit lines through infrastructure finance companies. We expect some positive surprises in power sectors. Auto and cement stocks will be in focus as companies from these two sectors start unveiling monthly sales volume data for February 2013 from 1 March 2013.

(The author is CEO, Latin Manharlal Securities)