Union Budget 2012: Nifty to be volatile till the Budget, say experts

It was an extremely volatile day for the market due to the election results in five states - Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa. The Sensex wiped out more than 500 points from day's high and closed at 17,173.29, down 189.58 points or 1.09%. The benchmark had rallied over 300 points in the first half of trade on hopes that there would be Samajwadi Party-Congress alliance in Uttar Pradesh.

SP looks all set to rule Uttar Pradesh after dethroning Mayawati. Party chief Mulayam Singh Yadav is likely to return as the Chief Minister of the state.

Meanwhile, the NSE benchmark touched an intraday high of 5,382.05 and low of 5,206.40 before closing down 57.95 points at 5,222.40.

The market will now shift focus to the next two important triggers - RBI policy and the Union Budget 2012. Experts believe that the market will continue to be volatile till the Budget.

Vikas Khemani of Edelweiss Securities says, market participants would be worried and volatility would be high. He feels till clarity emerges on the political front, there would be slightly less participation from institutional participants and volumes would be lower.

Dilip Bhat, joint MD of Prabhudas Lilladher too holds a similar view. However, on a fundamental basis, he says, the market seems to be on a very sticky and weaker wicket. "Post the Budget, the market may try to inch up to 5,600 or 5,700. But, on a longer term basis, the fundamentals will continue to make market extremely vulnerable," he warns.

Meanwhile, Sudarshan Sukhani of s2analytics.com says, the market behaves very silly, when these news events come. "I have maintained my short positions and the opportunity to add positions will now come," he adds.

The market wanted SP-Congress coalition in UP. People were expecting that once the Congress sleeks its way into the UP government, it will undertake a great number of reforms. According to experts, the Budget may not have a reformist flavour now.

Sanju Verma of Violet Arch Capital Advisors says, one should not read too much into these election results. "Elections results are not going to have any material impact on the Budget," she suggests.

Khemani feels the upcoming Budget could be a lot more populist or socialist in nature and tough decisions probably would not be taken. "Though it is premature to comment on what kind of political equations will pan out over next few days, but right now the market seems to believe that the Budget could be not so economic reform oriented and could be a drag on the market or economic growth," he adds.

Verma, on the other hand says, nobody was expecting the Budget to have a reformist flavour. "My sense is you are not going to see too much by way of reforms coming out in the Budget," she adds.

According to Anup Bagchi of ICICI Securities, though there is interest from foreign institutional investors (FIIs) towards India, uncertainty to move ahead with investments is hampering their conviction. "Investors seek implementation and action now from the government," he adds.

All in all, the unanimous opinion now is that the market will be volatile till the Budget. So, investors should exercise some caution now.