Markets to make a flat start of the Budget day

The Indian markets reacting negatively to economic survey’s cut in GDP growth projections ended with lower by over half a percent in last session. Today, the start of the big day of budget is likely to remain cautious and the major cues will be coming from budget only, though Economic Survey has hinted at demonetisation ‘windfall’. It also said that the rupee has strengthened by 8.3-10.4% in the last two years and suggested free trade pacts with the UK and European Union, estimating the gains at 1.5 million new jobs and $3 billion of extra exports per year, as exports can only rev up the GDP growth of over 8%. Traders will also be getting some support with Central Statistics Office (CSO) revising up India GDP growth to 7.9 percent in 2015-16, from 7.6 percent estimated earlier. Though, there will be some cautiousness too with fiscal deficit in the first nine months of 2016-17 touching 93.9 per cent of the Budget target against 87.9 per cent for the same period a year ago. Also, the Reserve Bank of India (RBI) has said that non-food bank credit showed a lower growth of four per cent in December 2016, compared with an increase of 9.3 per cent in December 2015. The IT stocks will continue to remain under pressure, as  a legislation has been introduced in the US House of Representatives which among other things calls for more than doubling the minimum salary of H-1B visa holders to $130,000, making it difficult for firms to use the programme to replace American employees with foreign workers. There will be lots of important earnings announcements too to keep the markets buzzing.

The US markets made a mixed closing in last session, while the tech heavy Nasdaq ended in green, Dow and S&P extended their decline, though were well off their worst levels of the day. The weakness came following disappointing earnings news from some big name companies. The Asian markets have made a mixed start too; some indices in the region were getting support with report that China’s official factory gauge started the new year on a robust note. China notched a 6.7 percent full-year expansion last year, with growth quickening to 6.8 percent in the last quarter.

Back home, Indian equity benchmarks carried forward their southward journey for yet another session on Tuesday as participants kept their bets to a minimum ahead of the federal budget, while the risk sentiment was hit as Asian shares fell on worries over US President Donald Trump's immigration policy. The Union Budget 2017 will be a tightrope for Finance Minister Arun Jaitley to boost public spending and also keep deficit within limits. Local sentiments also got undermined by the Economic Survey 2016-17, tabled by chief economic adviser Arvind Subramanian, estimating economic growth to moderate to 6.5% in the current fiscal year ending March 2017, down from 7.6% reported in the previous fiscal. It also outlines three main downside risks to FY18 GDP growth forecast adding that demoetisation, rise in oil prices and global trade tensions will affect the growth forecast. The Economic Survey, however, sees India's GDP rebounding sharply in the range of 6.75-7.50 percent during the fiscal year ending March 2018. Painting a rosy picture on the agriculture sector, the survey sees farm sector to grow at a healthy rate of 4.1 percent in the current fiscal as against 1.2 percent growth achieved in 2015-16. Furthermore, market participants remained anxious with the CII - IBA Financial Conditions Index for Q4 (January-March) FY2016-17 recording a drop below the 50 mark owing to expectation of banks and financial institutions of deterioration in the overall financial conditions in the economy.   Meanwhile, banking stocks declined on the report that demonetisation is likely to push back recovery in banks' asset quality as the cash shortage had a ‘disruptive impact’ on India's informal economy. Cash shortages caused by the demonetisation of large denomination currency notes have affected the income of many borrowers by holding back economic activity and reduced their short-term repayment abilities. Furthermore, IT stocks slipped as investors panicked over US President Donald Trump plans to keep his electoral promise of imposing tougher immigration rules on the H1B visa plans. Finally, the BSE Sensex declined 193.60 points or 0.70% to 27655.96, while the CNX Nifty was down by 71.45 points or 0.83% to 8,561.30.