The Indian stock markets that have risen 20 per cent year-to-date may see a sharp correction post the budget, IL&FS said. An 8-10 per cent correction is quite likely with the downside Nifty level seen at 6,800-7,000, Vibhav Kapoor, group chief investment officer, IL&FS told NDTV.
On Tuesday, the Nifty was trading close to 7,600 levels.
"We have had a sharp rise over the last few months. Markets have perhaps run ahead of fundamentals they are also going up on hope, so valuations have become a bit expensive and then we have these two issues of oil prices going up now and deficient monsoon likely which are looming on the horizon," Mr Kapoor said. (Watch)
However, Brent crude edged back from nine-month highs as concerns waned over Iraq's country's oil exports. Brent fell to $113.72 a barrel from $115 levels on Tuesday.
In the run up to the budget, there may be further upmove in the markets, IL&FS said.
"Normally pre-budget markets don't go down much, that's Indian history, there's always expectation from the budget and this time all the more so because you have a new government and hopes are running high," Mr Kapoor said.
Upside on the Nifty is seen capped at 7800-7850 level ahead of the budget on July 10, he said.
The Narendra Modi-led Bharatiya Janata Party (BJP) government's intentions seem constructive and positive and they intend to bring a lot of changes and reforms, IL&FS said.
"But obviously too early to judge on the action part of it because the government has been there for just about four weeks. I think we need to give them at least six months to be able to get a real idea of how this translates into action," Mr Kapoor said.
(With agency inputs)
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