Market participants will try to envisage the reforms and measures that could be announced by Finance Minister Nirmala Sitharaman in the budget to be presented on February 1 and make speculative trading decisions.
The Indian stock markets have historically been volatile with negative bias in the fortnight preceding the presentation of the union budget.
Bears were in full control of the Dalal Street during the week ended January 21. Snapping four-week of winning run the benchmark indices – Sensex and Nifty – slumped around three-and-a-half per cent during the week. The key indices sustained heavy losses for the four out of the five trading sessions of the week.
The benchmark Sensex lost 2,185.85 points and the Nifty slumped 638.6 points or 3.5 per cent during the week ended January 21.
The Indian stock markets witnessed heavy selling during the week on negative cues from the global markets amid speculations that the US Federal Reserves would hike policy rates sooner than expected.
Major indices across the world witnessed heavy losses during the week. Nasdaq Composite Index lost 7.6 per cent during the week. S&P 500 lost 5.7 per cent.
The rate hike speculation led to increase in bond yields. The US as well as Indian bond yields rose to two years high. India’s 10-year government bond yield rose to 6.68 per cent and the US 10-year treasury yield climbed to 1.90 per cent.
Foreign institutional investors sold heavily during the week. Investors are withdrawing money from equities and investing in debt.
A sharp increase in crude oil prices, rising concerns over inflation and restrictions imposed across the country to contain the spread of new variant of COVID-19 have also spooked investors’ sentiments in the markets. Crude oil price surged to $89 per barrel, the highest level in seven years.
The Union Budget 2022-23 will be presented ahead of the assembly elections in five states. Uttar Pradesh assembly election is seen crucially important. There are strong speculations that the government will come out with populist budget to win hearts of the voters.
Apart from the speculative trading ahead of the budget there are several other developments that are likely to keep the markets volatile in the coming days.
The US Federal Reserve’s meeting is scheduled on Tuesday and Wednesday. The Fed action will have huge impact on the markets globally. While the Fed has already given indication for increasing the policy rates, investors await clues from this week’s meeting on by how much the rates will be increased and when it will start.
There are also major earnings reports expected during the week. India’s most valuable company Reliance Industries Limited (RIL) announced its third quarter results on Friday. The report was made public after closing of the stock market trading on Friday. The company has reported a robust 38 per cent jump in its third quarter net profit. It will be interesting to see how the markets react to RIL’s third quarter number.
ICICI Bank announced its third quarter results on Saturday. The private sector lender net profit rose by 25 per cent to Rs 6,194 crore during the quarter ended December 31, 2021. Direction in the scrips like Reliance Industries and ICICI Bank would have big impact on the market on Monday.