Budget not big bad wolf; market to pierce 5600 in March

Heading into this action packed week, expectations were that the market would be slightly nervous about the RBI credit policy, the outcome of the Budget and its impact on the economy. Instead, strong buying painted Dalal Street green and helped Nifty soar past the 5400 level in trade today.

March started off on a somber note, and the riling party's dissapointing show in the Assembly elections only added to the downtrend. Important psychological levels were broken with ease, the Nifty falling as low as 5180, but liquidity again swooped in to lift spirits. Since then, the Sensex has gained close to 700 points, and today closed up 1.3% at 17,819. The Nifty too successfully managed to hold 5400 and closed up 72 points.

The big question now is whether the Budget will act as the big bad wolf and restrict gains on the index. Not likely, according to Anand Tandon, chief executive of JRG Securities. "My own feel is that the Budget might be a little more positive than what most people give it credit for, and I guess that is playing on the minds of people when they are looking at the market," he said.

Technical analyst Sudarshan Sukhani of s2analytics.com agrees with Tandon. He believes that the market has resumed its uptrend after a brief correction, and that theNifty could move to test its previous highs of 5630.

Even PN Vijay is batting for a pre-Budget rally on the back of the exuberance brought in by the CRR cut.

On the flip side, David Pezarkar of Daiwa Mutual Fund believes that strong structural headwinds will force the market into a broad range. "But there is a cyclical sort of an upswing because interest rates are likely to moderate going ahead and expectations are positive in terms of the forthcoming Budget," he added.

Anu Jain of IIFL Private Wealth Management also says that the Nifty will trade in a tight band of 5,150-5,400, and that momentum will pick up only post-Budget.

To buy or not to buy

Yes the gains have been spectacular, and it looks they will continue, but market players are slightly wary about entering in this uncertain environment. The support from foreign players continues to pour in, but domestic mutual funds and retail players have been net sellers since the beginning of 2012. Even in March, FIIs have pumped in close to Rs 2000 crore but domestic institutions have sold a little over Rs 600 crore, indicating their lack of confidence.

Tandon says that retail participation will only come back fully when the market shows signs of a sustaining trend. "This year may provide that trend, and to that extent I think as the year progresses you may see more and more retail participation," he says.

As of now, Tandon says that participation in equities is only 2%, and even that is mainly professional traders.

For those who are willing to dip their toes and take the risk, Sukhani advices caution "With the events lined up, traders should be cautious because the market will be volatile," he warned. Therefore, his advice is to book profits on 60-70% of positions held currently.

"If we have a decent Budget, I think we should get 5,600 in March," says PN Vijay. However, there are also other factors to take into account like the inflation figure, possible interest rate cuts and the GDP growth.

Pezarkar expects the inflation headline number to come in lower, which will be positive for the market. "In terms of the RBI move, we are not expecting any move before the Budget, so I think the news flow this week should be positive for the market and I think that is what the market is also anticipating," he added.

So while there may be some hiccups on the way, the consensus is that the market's uptick is strong so don't shy away because of volatility.