Share Market Tips: General budget is going to come, will the market fall drastically?

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When we wrote this column last week, the FPI investment was less than Rs 5000 crore, raising doubts about the continuity of the investment. Meanwhile, the Nifty has reached a new high, and this is not digging from the street. Everyone is expected to decline. We also had our view last week that the fall may only come with a strong event like budget, as it seems quite difficult to break the current upsurge. As per Thursday’s data, FPI investment of Rs 18,490 crore has come in December. This is lower than in November 2020 and December 2020, but sufficient to maintain the order of bounce.

The Nifty declined slightly on Friday. The reason for this was the weakness in US market futures. India’s GDP currently stands at $ 2.6 trillion, showing a recovery from previous valuation figures of $ 2.4 trillion. At the same time, India’s M-cap (BSE) is $ 2.67 trillion, making a ratio of 97 percent, which is still comfortable according to the market outlook. We should be very cautious at 120 percent. If we look at the level of PE, we are already at the danger mark, but here is an alternative argument, we have to give a discount on 2022 which is 1 year ahead PE, so it doesn’t really matter. 2022 PE 24 arrives, so it seems reasonable, especially when unprecedented FPI investment is coming.

We have seen FPI investment of Rs 1,22,000 crore only in the months of November and December and so far in January we have seen inflow of Rs 18,500 crore, which is still quite high. Cumulative inflows are $ 35 billion since May 2020 and we expect 40 to 50 billion more inflows. The US has approved a $ 1.9 trillion relief package on Thursday, which means more inflows will come.

As long as such FPI investment continues to come, the market will continue to boom. At the same time, we also need to take adequate precautions, because a big event is coming to a close. The whole world is talking about this dream budget. The country’s Finance Minister Nirmala Sitharaman has said on record that this will be the best budget of a hundred years. Now it has become quite interesting to see the engineering of the budget.

The estimated revenue for the financial year 2020-21 is 20,20,926 crore, which is 9.23 percent more than the previous year’s figure of 18,50,101 crore. There is no hope of reaching this figure of revenue. The revenue deficit, which was estimated at 3.8 percent, may go up to around six percent. There has been a huge reduction in tax revenue. Last year, the government reduced corporate tax. The government had reduced it to 25 per cent and for new companies to 15 per cent.

Disinvestment has also been negligible. The government is expecting to receive Rs 90,000 crore from BPCL. If the BPCL deal does not happen in the next 15 days, then even if the government claims another one lakh crore credit in the disinvestment account, it will not affect the market. Individuals are also struggling with dividend tax, which came from companies in the last budget. TDS on dividend has definitely made things more complicated.

Having said this, even though we have no reason to doubt the intentions of the Finance Minister, the question remains what will the best Dream Budget of 100 years bring for us. There may be good scope for improvements. For example, they may introduce a scour policy in the budget, which may give a boost to the auto sector. They can bring mining and coal policies to the budget. They can clear the way for the arrival of multinational companies in India. They can also announce gold digitization. All this is good for the long-term health of the economy, but what about three burning issues – fiscal deficit, market borrowing and mismatched revenue? The rise in oil prices is also a burning issue, which could eat up India’s budget again.

The market certainly does not like high revenue losses and high market borrowings. So if the government does not find the means and ways to reduce the fiscal deficit and market borrowing, the participants will certainly react negatively. At least the inflow will stop for some time. Some vicissitudes may also be seen. You should also see it from another angle.

FPIs do not want the market to go down, as they are permanent residents here. The fall will be with a purpose. When the market falls, there will be mass unwanted and retailing, which makes the market lighter and this is what they want. There is no meaningful uptick until the market becomes light and shorts are stuck. Thus, if the market falls 5 to 10 percent after the budget, this would be a good buy opportunity, as we believe that the Nifty has the potential to go up to 16500 in 2 years and 18800 in 3 years.