The Sensex and the Nifty dropped this week, thanks to a lukewarm Union Budget. Selling from Foreign Portfolio Investors only accentuated the fall this week.
The Nifty ended the week with losses of near 2 per cent, thanks to sustained selling pressure. It was the worst weekly loss in nearly two months.
All eyes on quarterly results
With the General Elections and the Union Budget now behind, all eyes are on corporate earnings. The season kick-started with numbers from TCS, which were reasonably good to say the least. However, the stock saw selling pressure as the p/e has already expanded significantly in the last few months.
Another tech major, Infosys also delivered a good set of numbers as was largely anticipated. Going ahead most stocks are likely to react to their numbers and it would be less of index movement and more stock specific. Stocks like Infosys and Karnataka Bank will react to numbers on Monday.
Budget recommendations lead to fresh selling from Foreign Portfolio Investors (FPIs)
The budget raised the surcharge on tax paid for the super rich. According to a report in the Mint, about 40% of FPIs will be hit by the hike in surcharge as they invest as non-corporate entities, which are classified as regular individuals for taxation purposes. They will thus have to pay more income tax.
Markets have seen sustained selling pressure by FPIs in the entire part of this week and more maybe due in the coming week. Interestingly, the selling pressure has been absorbed by domestic institutions.
However, the reduction in promoter stake may see huge amount of paper in the coming months, which could have an impact on the markets.
Results of banking stocks would be eagerly watched
Banks have the highest weightage in the indices and some heavyweights like ICICI Bank and State Bank of India would need to fire with their numbers for the indices to gain from here.
The problem right now is that FMCG stocks and pharma are unlikely to contribute, which leaves only scope for banking stocks. In fact, here too we have already seen significant gains being made by the likes of ICICI Bank and State Bank and any disappointing set of results will not go down well with the markets.
Numbers from Yes Bank too would be eagerly awaited, given the downward spiral the shares have seen.
Global cues remain robust
Global cues have continued to remain robust with the Dow Jones closing above the 27,000 points mark for the first time ever. The run has been phenomenal and many investors expect further momentum. There are hopes that the US Federal Reserve would cut interest rates going forward, which has driven stocks even higher.
However, how far the momentum would last is difficult to say. Bond yields have also fallen which has pushed stock prices higher.
A further downside in stocks cannot be ruled out
As stated earlier some of the budget recommendations have not been favourable to the market and we might see some more selling pressure in the markets in the coming days. A buy on decline would be a good strategy, if the markets fall another 5 per cent or more.