Let the impatient volatility settle, invest when the noise dies down

The domestic equity market remained under pressure during the week gone by, thanks to the overhang of coronavirus and huge expectations from Union Budget 2020. But, the extended week for the market didn’t end on a good note, as the Budget turned out to be more long term in nature, while Dalal Street was expecting some short-term kickers to boost the economy.

However, from a holistic perspective, the government seems to have taken a piecemeal approach with reforms right since October with corporate tax cuts followed by a real estate package and significant infrastructure push. Hence, the Budget has focused on the revival of purchasing power by benefitting taxpayers in a bid to move towards a more simplistic tax structure with lesser exemptions, simpler processes, transparent systems and lower taxes, laying the new foundation for a more robust tax structure.

Efforts to improve digitisation, remove DDT, new education policy for building a nation for the next decade, increase the supply of doctors and helping healthcare by creating medical colleges next to existing hospitals are all parts of the government’s larger vision to take India forward.


All these reforms will bear fruits in the long term with a solid foundation, but in the short term, there is nothing for the market to cheer, given that there was limited leeway for the government to dole out further tax cuts. Whatever the government has already committed, if they are executed well, they should help increase growth in the years to come. But the next few quarters may see lacklustre growth. To sum it all, the Union Budget 2020 is more long-term growth oriented and lacks short-term kickers.

Event of the Week
While the Budget disappointed Dalal Street, Jan auto numbers signalled decent recovery. Reported sales figure indicated that demand has started gaining traction in the compact/small vehicles segment. Maruti, the leader, delivered 1.6 per cent YoY increase in total January sales with compact vehicles registering 9% growth, which can be taken as a signal that ground-level concerns such as curbed consumer spending are fading away and green shoots are emerging.

Technical Outlook
Nifty50 has decisively broken the trendline and the correction seems to be deepening. The steep fall is expected to have sharp bounces in the near term. Volatility is very high currently and, therefore, the market needs to stabilise before any meaningful trading bets can be initiated. Traders should not short, but wait for bounces.

Expectations for the Week
Indian bourses are expected to rebound once the gears to understand the long-term implications of Union Budget start rolling. Nonetheless, it seems that the market has entered a phase of short- to medium-term correction. Therefore, every rise will come with profit booking. The earnings season for corporates is still under way. The performance till date has been in sync with the ground reality of economic slowdown. Investors are advised to let the market settle with impatient volatility and invest only when the noise dies down.

Nifty50 closed the week at 11,661, down 4.8 per cent.