After the market bashing, budget could be the balm

Markets began the week on a positive note with gains on Monday followed by a flattish Tuesday. Wednesday saw sharp corrections for reasons best unknown and then a sharp decline on Friday, post the Republic Day trading holiday which saw shares fall across the board led by the Adani pack.

As a result of all of this, markets broke crucial support levels as well. This indicates that in the immediate short term we may see only corrective rallies while a sharp fall cannot be ruled out. BSESENSEX lost 1,290.87 points or 2.13 per cent to close at 59,330.90 points while NIFTY lost 423.30 points or 2.35 per cent to close at 17,604.25 points. The broader indices saw BSE100, BSE200 and BSE500 lose 2.47 per cent, 3.09+ per cent and 3.09 per cent respectively. BSEMIDCAP was down 2.66 per cent while BSESMALLCAP lost 3.51 per cent.

The Indian Rupee lost 40 paisa or 0.49 per cent to close at Rs 81.52 to the US Dollar. Dow Jones gained on all five days of the week, with Friday being more of a flattish day. It gained 602.59 points or 1.81 per cent to close at 33,978.08 points.

January futures expired on Wednesday the 25th of January. They were under pressure on the last day and lost 299.05 points or 1.64 per cent in the series. They closed at 17,891.95 points. The new February series began with losses of 286 points on the very first day of trading. A large part of the blame for the weakness can be attributed to the sharp fall in prices of Adani group shares led by Adani Enterprises which is in the midst of its follow-on offer of Rs 20,000 crore. This issue opened on Friday the 27th of January and would close on Tuesday the 31st of January.

The street attributes the same to a report from Hindenburg on Adani Enterprises. This attack by so called Hindenburg, is from the US based investment firm that specialises in activist short selling. Very clearly there is a vested agenda and the Adani group has clarified on the allegations made.

The fate of the FPO still remains unclear which closes on Tuesday the 31st of January. The price band is Rs 3,112-3,276. Half the amount is to be paid on application and balance on call which would come much later. For retail applicants there is an upfront discount of Rs 64 available. The stock of Adani Enterprises closed at Rs 2,762.15 on Friday.

The difference between the closing price and the floor price is Rs 350 and to expect that investors would apply in the FPO would be naive when shares are available cheaper in the market than the FPO. At present levels, the floor price of the share and market price being far away, a reduction in price seems the only alternative if the issue is to be subscribed to. This outcome may happen only on Tuesday as there is no other instance of price being reduced midway through an issue, but only at the end.

The company or the Adani group has intimated that they would reply to the questions asked by the activist fund after the FPO is over. This would ensure that the panic in the share subsides and normalcy returns. Expect the share to stabilize over the next couple of days as markets look to the next course of action on the revised pricing front. For the records, the RHP states that the company may reduce the offer price by up to 20 per cent from the floor price.

The week ahead sees the budget being presented on Wednesday the 1st of February. We are quite used to seeing or hearing or talking about a pre-budget rally. This time nothing of the sort has happened whatsoever. Further with just one day of trading post futures expiry, positions in the market are quite low and there is no clarity on market trends. Friday's trading ensured that the last bull also probably squared his position and was waiting on the side-lines.

In such a scenario, with the last full budget before the general elections due in 2024, the FM has to deliver. No great expectations. She has the numbers behind her in terms of revenues from GST, corporate and individual income tax, and an economy which is fairly stable. While inflation and rising interest rates have hit the world, we are no exception either. However, we are better off than most of the world. She needs to address the issues of the salaried class and middle income who desperately need some relief on standard deduction and basic exemption limit. Some focus on PLI schemes extension and their enlargement, and the political direction to woman empowerment and child development. If all of this is done with the fiscal deficit kept under check, the budget would be hailed.

Having said what can be done, is done, What next? Markets will respect the presentation of the budget and rally. The fact that our markets are richly valued in the present context cannot be denied. There is outflow from our markets to some other markets happening. With a budget leading to growth being delivered, our aim to become a 5-Trillion economy in 2024-2025 would be achievable.

The strategy for the week would be to allow markets to move on their own for the first two days of the week. Post the budget, take positions if the FM delivers, on the long side. There is hardly much downside left at current levels. Crucial levels for the markets are 61,343 on BSESENSEX and 18,265 points on NIFTY being the crucial high points. With levels of 59,625-59,675 on BSESENSEX and at 17,760-17,795 on NIFTY acting as strong support on the lower side so far, being broken on Friday, new levels would be between 17,000-17,200 on NIFTY. These would correspond to 57,250-57,850 on BSESENSEX.

The downside levels mentioned above are medium term targets and may not happen immediately until and unless some disaster hits markets post budget. Keep your fingers crossed for the time being.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)