07 March,2011 07:58 AM IST | | Alex K Mathews
What we saw last week was an action-packed and a well-structured Union budget, with markets showing an upward movement, touching core areas of interest like agriculture and investment in infrastructure. The budget was welcomed, as the markets had elements to cheer.
Nifty saw an over 200-point rally even though the crude price moved past $102 during the week. Going forward, the crude price will definitely have an impact on the markets, negatively or positively. For Nifty the major resistance would be at 5627 and 5640, if it can move above this level then we may see further market upside and the support is there at 5453 and 5425.
But the growing unrest in Libya and fear of contagion in other Arab countries will be a major hindrance the markets will be faced with in the coming week. The political unrest in Libya will keep the dollar denominated commodities on fire. Gold has an immediate target at $1444, Silver at $35.80 and Crude at $105.75. Both long and short positions in these commodities should be kept under vigil, because highly volatile movements are expected.
One should keep in mind that the RBI is meeting for the mid-quarterly policy review on March 17 and we might see another round of rate hike coming our way, as inflation seems to be untamed. This might keep the rate sensitive sector under check.
The cabinet on Thursday approved a bill to amend the Banking Regulations Act, which will make it easier for banks to raise capital through bonus shares and rights issues by removing the 10 per cent cap on voting rights of a shareholder. Price decline can be utilised to buy shares of Central Bank and Vijaya Bank with a medium term perspective.
Looking at the budget, to strengthen the agriculture sector, the government decided to move towards direct cash subsidy transfer to people below poverty line for better delivery of kerosene, fertiliser etc and also has decided to remove production and distribution bottlenecks for items like fruits, vegetables, milk, poultry etc. Another major step was towards capital investment in fertiliser production proposed to be included as an infrastructure sub-sector.
As far as the infrastructure is concerned, the government has increased allocation by 23.3 per cent over last year's budget allocation, towards infrastructure development. For the capital markets to cheer, the government allowed Securities and Exchange Board of India (SEBI) registered mutual funds to accept subscription from foreign investors who meet KYC requirements for equity schemes and also raised the FII limit for investment in corporate bonds issued in infrastructure sector. Automobile, infrastructure, banking, healthcare, fertilizer, agriculture, realty and education stocks got investors attention post budget. Counters like Petronet LNG, GSFC, Gravita, Grasim and Bharat Forge can be bought at every decline.
Given all these positives, the budget didn't address the long awaited relaxation of Foreign Direct Investment (FDI) limit in insurance and retail sector. The government raised the personal income tax slab from Rs 1,60000 to Rs 1,80000 incurring a net revenue loss of Rs 11,500 crore but this was nullified by the net revenue gain of Rs 11,300 crore from indirect tax collection.
Sector, which didn't find place in the budget, were IT, aviation, hotel, etcetera. To sum up, it was an inclusive budget centred at agriculture and infrastructural development. High crude prices will have negative impact on aviation and oil marketing sectors in general.
In the US front, the ISM manufacturing Index rose to 61.4 against 6.8 previously while the US total vehicle sales rose to 13.4 million against 12.6 million. The US ADP non-farm employment change was at 217000 against 189000 and the initial jobless claims declined to 368000 from 388000 indicating that economy is growing and people are having income at their
disposal.
The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
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