Market Trade Set-up 5th July
The budget day arrives and this takes me back to 23rd May which was the result day and everything was dependent on the outcome of the election. Today is also such kind of a day where the market movement will be decided on what Nirmala Sitharaman’s first budget is going to be. Is she going to take the rural way or being the first budget focus on improving the economy needs to be seen!
If you see the last 5 budget days here is how Nifty performed.
1. 2014: Nifty closed 17 points down but intraday volatility was 252 points or 3.3%
2. 2015: Nifty closed 57 points up and has seen intraday volatility of 190 points or 2.2%
3. 2016: Nifty closed 42 points down and the intraday volatility was 269 points or 3.9%
4. 2017: Nifty closed 155 points up and the intraday volatility was 185 points or 2.2%
5. 2018: Nifty closed 11 points down and the intraday volatility was 239 points or 2.2%
So if you see 3 budget days it closed up and 2 budget days it closed down and the volatility is between 2.2% to 3.9%.
What to expect from this budget?
This is the first budget of Modi 2.0 and the primary focus of this budget is going to be the 5 trillion dollar GDP target that we have for 2025. So, this budget in a way lays foundations for that. What needs to be done has to be planned and implemented. GDP growth can only happen if the fiscal deficit is low and today we will get to hear whether Govt will stick to 3.4% target that it has set for itself or does it revise it to 3.6 or 3.7%.
Second is the bank recapitalization that will give a boost to PSU banks and Govt also wants to divest from many of the PSUs and we would also see something on that today. Next is the doubling of agro income by 2021 and PM Kisan yojna. What will be done on that front also needs to be seen. Make in India is a centerpiece for 5 trillion economy and how Govt works on improving manufacturing sector also needs to look at in today’s budget.
What would the stock market expect from the budget today?
The top of the list is taxes and reforms. Corporate taxes would be something that will be keenly watched and also important would be the Capital gains tax. It is at 10% now and the market will expect something that needs to be done. The market also expects Govt to look at divesting from PSUs and even if Govt mentions that also, it would be taken very positively.
The market also expects this budget to be mostly corporate-oriented than rural oriented focusing and indirect taxes like GST and income tax also would be on the radar. If Govt introduces anything that is a boost to infrastructure, manufacturing and banking sectors expect markets to go up. Anything to do with taxes going up, expect a very negative reaction.
What is the Nifty call for the day?
Today all the markets are in the flat territory and the US was shut yesterday for Independence day and so today we can have a very flat opening where we closed around 11930-11960 levels and today we can expect Nifty to touch 12100 if things are positive and might even to to 11800-11850 levels if things won’t work. The average volatility is 2.7% in the last 5 years which means around 300 points move on the upside and downside.
So, be very careful in trade today. If your targets are met just exit. Don’t try to extend targets by getting greedy. Don’t rush into shorting the market if it starts to fall. Just listen to the budget, understand the picture and act accordingly. If you can’t then stay out. Money in pockets is better than money lost!