Indian equity markets are entering the budget session trade with a degree of confidence, rallying over 2 percent from the lows in the last three days.
To be clear, the sharp drop from 10930 levels to below 10600 on the Nifty in the weeks preceding the union budget probably priced in any fears of a fiscal slippage of 10 to 20 basis points on account of sops to boost the farm or rural economy.
The more recent upswing can be attributed also to two other factors. Dovish commentary from the U.S. Federal Reserve, that has boosted global equities. And earnings of private banks like Axis Bank and ICICI Bank that have aided an over 3 percent rally in the Nifty Bank in the last three trading sessions.
Foreign investors also seem to be sanguine flows with positive flows in four of the last five trading sessions. Infact, Thursday marked inflows of over Rs 3,000 crore, the highest since Dec. 7.
Sceptics would argue that the rally has been narrow, with only fifteen stocks giving positive returns in January. Midcap and the smallcap stocks have not recovered from losses. Moves have been narrow, led by the IT space and select stocks like Axis Bank, and the broader markets have been soft, with some serious casualties like DHFL, Dish TV and HEG, each of which has corrected over 20 percent over the last five days. But then those stocks have also witnessed specific negative newsflow.
However, Thursday's trade has given fresh legs to the bulls and a boost to long traders. The conversation in dealing rooms has shifted from fears of a spike in yields, on account of a widening fiscal deficit, to buying the weakness in the absence of no other big negatives.
Do note however that while short positions in the Nifty have been largely covered on expiry day, trading positions are lighter compared to previous series - showing that traders are inclined to stay light ahead of the big day.
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