It was a bad week for the markets with the Sensex losing 2.3 per cent the Nifty losing 2.5 per cent this week. Persistent selling from Foreign Portfolio Investors has ensured that the markets continue to trend lower. This was despite Europe and the US outperforming Indian markets significantly.
As we move head into the next week all eyes would be on the Union Budget 2016-17, which could provide directions for the market in the short term.
The one thing that would be eagerly watched is the long term capital gains tax on shares. At the moment, there is no capital gains on shares, if the shares are sold after 1 year. However, there are reports that it may be hiked to 3 years. What this means is that if shares are sold before three years, long term capital gains tax would apply in case there is a profit.
At the moment, it is difficult to say whether this would be implemented. The benchmark indices have already shed close to 22 per cent from peak levels seen in March 2015. It would be a bad idea to implement the same in this year's Union Budget, given the fact that sentiments are low.
Another piece of data that would be eagerly watched is the fiscal consolidation roadmap. It is highly likely that if the government does not stick to the roadmap, it may disappoint the markets. This is because it could lead to inflationary pressures and the RBI would be reluctant to cut interest rates.
What would be eagerly watched is also the investments in rural infrastructure, farm sector etc. Some clarifications on retrospective tax could also help in calming nerves.
It is going to be a volatile week and there is little doubt about that. Long term investors can stay away and continue their investment through the Systematic Investment Plan.