Time to stay on sidelines ahead of union Budget

The strategy for the July 18-24 period would be to take some money off the table and keep it handy for any untoward correction which would throw up buying opportunities post the budget

Markets in July 11-17 period continued their upward movement without any hindrances. There was a minor hiccup on the very first day of the period under review, but it was smooth sailing thereafter. Markets gained on three of the four trading sessions and lost on one. BSE Sensex gained 791.78 points or 0.99 per cent to close at 80,716.55 points, while Nifty gained 288.53 points or 1.19 per cent to close at 24,613 points. Tuesday saw new intraday highs and closing highs on BSE Sensex and Nifty. This seems to be a regular feature and markets did so on three of the four trading sessions. The intraday highs were at 80,898.30 points on BSE Sensex and at 24,661.25 points on Nifty. The closing highs were at 80,716.55 points and at 24,613 points respectively.

Dow Jones had a great period and gained on all five trading sessions. It gained 1,663.21 points or 4.23 per cent to close at 40,954.48 points. This is a new all-time high for Dow. The cause of the sharp rally on Tuesday was the belief that an interest rate cut is almost certain in September. Whether the rate cut materializes or not is still some time away and in an economy which seems to be racing away, anything could happen. Further, the US votes for a new President in less than four months from now.

The IMF has revised the GDP growth forecast by 20 basis points for FY25 to 7%. The IMF believes this would be driven by private consumption. Even our markets are betting on growth in rural demand and FMCG stocks over the last two weeks have seen substantial traction.

The Union Budget is to be presented on Tuesday (July 23) and it’s now a mere three trading sessions away. The fourth trading session would see the budget being presented. While expectations have not been driving the markets, the way retail investors have entered and tasted success with their bets on the PSU stocks whether they be from the defense sector, energy and power, railways or even the public sector banks are indeed mind boggling. Almost all these stocks are trading at valuations which are on par if not better or higher than their private players. The enthusiasm and confidence of these investors makes one feel uncomfortable on the valuations front. What the budget has in store for the markets will be known on Tuesday and the fate of many investors would be decided.

What should one do is the most important question at this point of time. While expectations abound, reality could be different. While I have been advocating booking some profits and setting aside money for a correction, I must admit that I have been proven wrong. Markets have stood rock steady and actually gained. Nevertheless, I maintain my stand and would stick my neck out to reiterate that money must be taken off the table. Post budget, there has to be a reality check. Mind you results season is on and just two trading sessions after the budget is presented, July futures would expire. Too many crucial events in a bunched-up time frame. The strategy for the July 18-24 period would be to take some money off the table and keep it handy for any untoward correction which would throw up buying opportunities post the budget. The comfort in valuations and the technical position of the markets, doesn’t now support long positions and caution needs to be exercised. After an excellent run up in markets over the last seven to almost eight months, the last 45 days have been spectacular. Tuesday’s movement in the US would fuel Indian markets and if God willing we have another good day in the markets on Wednesday in the US, a gap-up opening is on the cards. Comfort lies in the large-cap stocks and profits made in the small-cap and mid-cap stocks should be booked, if not completely at least partially.

Result season is on and there have been nothing which could be termed as excellent or outstanding. While the IT results from TCS and HCL have been good, but not extraordinary. However, the IT pack has gone up quite sharply post these results. They have also given momentum to the markets.

In conclusion, take money off the table and restrict trading over the next three days before the budget is presented. Investors should keep money on the sidelines to enter on sharp dips when opportunity arises. Trade cautiously.

(The author is the founder of Kejriwal Research and Investment Services,an advisory firm)