Budget 2016: With much to worry, Street has a lot riding on the FM Arun Jaitley

MUMBAI: Stock markets are on tenterhooks ahead of the much-awaited Union Budget on Monday. Will the finance ministry relax fiscal deficit targets? Will long-term capital gains be applicable after three years against one year now? These are some of the issues on investors’ minds.

Meanwhile, traders raised their bearish bets on worries that the Budget may have announcements that could spook the markets.

“For the first time, we are entering the Union Budget with a fairly high level of negative expectations,” said Tarun Sisodia, head of research at Anand Rathi Institutional Equities.

Brokers said market could fall if the government eases fiscal deficit targets and tightens rules for capital gains tax.

“There will be a violent reaction from the markets if the Budget disappoints,” said Sandeep Nayak, executive director, Centrum Broking.

Investors want to know how the government will revive the slowing economy and recapitalise banks without burdening its finances.

“Fiscal deficit can be relaxed to a certain extent, but I won’t be happy if it goes beyond 3.9% because that raises questions about how global rating agencies will perceive us,” Nayak said. Sensex rose 0.78%, or 178.30 points, to 23,154.30 while Nifty gained 0.85%, or 59.15 points, to 7,029.75 on Friday.

“The biggest fear that stock market is grappling with is linked to what happens on the change in regulations for taxes on long-term capital gains,” said Pankaj Sharma, executive director, Equirus Securities. “If there is a negative development, markets could have a significant and immediate downside.”

Brokers and analysts are expecting the government to announce measures to revive the rural economy. Had it not been for the Budget, investors would have focussed on the economic data in the US, such as consumer spending and inflation, and prospects of interest rate hikes by the US Fed.