Budget 2015 won't be a game changer for markets, say experts

NEW DELHI: Finance minister Arun Jaitley has so far managed to calm market nerves by not letting politics spell out his Budget plans. The FM means business and is expected to unveil a comprehensive and concrete set of measures to reboot growth.

The signs look pleasing, but will the FM's first full budget be a game-changer for the markets? Probably not, say experts. According to them, the earnings for the quarter ended December 31 have not been all that great and the trend is likely to continue in the upcoming quarter as well. Most of the expectation around reforms are somewhat in the price, they add.

After rallying 30 per cent in the calendar year 2015, the S&P BSE Sensex has already advanced a little over 6 per cent so far in 2015 and now it is trading well above its crucial psychological level of 29000.

"Frankly, the Budget should not really matter too much in terms of the broader direction for the market. But one should look at it in terms of how the government spending would be and what areas they would really increase their spending," says Mahesh Patil, Co-CIO, Birla Sun Life Mutual Fund.

Data points to the fact that Indian economy has bottomed out, but to keep the momentum going and lead India's GDP growth to double-digit mark, it is important that the government increases expenditure in a few areas such as infrastructure, realty and manufacturing.

Another key aspect that the markets will keenly watch out for is whether government stocks to the fiscal consolidation targets or not, say experts. It will be seen whether it is able to achieve its fiscal deficit target of 4.1% for FY2015 and set the target for the coming year at 3.6%.

Anticipating a reform-driven budget, the Sensex has already rallied nearly 1500 points and if history is anything to go by then market may see some selling pressure post the event.

"History suggests that the budget's influence on short-term market performance is declining, expectations (measured by pre-budget performance) are still important in deciding what the market does after the budget," says India equity strategy team of Morgan Stanley in a note.

"If the pre-budget returns are positive, there is a 90% chance that the post-budget returns are negative. The upcoming budget could be the most important one for the stock market after the early 1990s, when India launched economic liberalization," added the note.

Data since 1992 show that 15 out of 22 times, the market rallied from the beginning of the year to the budget day. Of these 15, in as many as 11 times, the Sensex at the end of the year had closed higher than at the beginning of the year, ET reported.

Analysts' do expect the markets rallying higher, but they don't see 30 per cent kind of an upsurge recorded in 2014.

"What we are seeing is that the earnings have actually disappointed on most fronts, and therefore to expect a huge rally on the back of these numbers looks little more difficult in upcoming quarters," says Manish Kumar, EVP & CIO, ICICI Prudential.

"So it is entirely possible that we may not have a big rally before the budget. At the same time, it is also possible that there may not be a very big swing post budget if the government is able to deliver on some of the issues that are facing the economy," he adds.