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Street set to see pre-Budget rally, FII sell-off slackens

Indian markets may rally in the run-up to the Union Budget that will be presented on February 1.

While not every Budget is preceded by a surge, investors are expecting a slew of sops in the Budget that could send stocks up.

The Sensex is already up 273 points, or 1.03%, in the new year since January 2.

Experts said stocks in housing and consumption-oriented sectors like FMCG, auto, cement may see a pre-budget rally and could also be the first to rebound from the note-ban impact.

Gautam Duggad- head of research, Motilal Oswal Securities Ltd told DNA Money, said, “The expectation that government could provide consumption stimulus post demonetization may keep sectors like FMCG, auto, housing financiers, cement counters ringing.”

Sanjiv Bhasin, executive vice president- markets and corporate affairs, IIFL, said stocks of material companies may also rise on hopes of excise duty relief and the prime minister’s announcement on low-cost housing. With interest subvention for housing and MSME and correcting valuations, non-banking financial companies could also benefit, he said.

“PSU banks like SBI/BoB and power producers like NTPC and PowerGrid, should do well. Also, select PSU stocks like Engineers India and NBCC will gain since they are hardly affected due to little cash component,” Bhasin said.

Siddharth Sedani, vice-president – equity sales, Anand Rathi Share & Stock Brokers Ltd, said, “Private banks, media, select auto companies will see faster recovery from the current blip due to demonetization.”

The Budget 2017 will also determine the trajectory of overseas investments in India, which relies on dollar and US bond market movement.

In line with the previous two months’ trend, foreign institutional investors (FIIs) selling, so far, has been in the red, however, the pace is slackening. They sold Rs 385.42 crore worth equities on January 10, down fromRs 678.87 crore sold on January 2.

Experts said the month-end could see further reduced selling. With the greenback weakening, emerging markets will see incremental inflows.

“Major inflows can come post-Budget provided the government accelerates developmental expenditures through it. Also, with interest rates hitting historic low, debt market is losing lustre. Fundamentally, there are no triggers for a pre-Budget rally however sectors like infrastructure could witness speculative triggers on the back of high hopes on public spending,” G Chokkalingam, founder and managing director, Equinomics Research & Advisory.

“Nifty is facing resistance around 8280 which is 200 DMA. If that is crossed, you could get 200 point pre-Budget rally in anticipation of strong FII buying post-Budget,” Bhasin said.