Pre-budget rally may be on cards

The Union Budget 2008-09, to be presented by Finance Minister P Chidambaram on Friday, 29 February 2008, will be one event that market will look forward to in the coming week. The market may see a pre-budget rally. The market may also see some upside from short covering ahead of the expiry of February 2008 derivatives contracts on Thursday, 28 February 2008.

Apart from the budget, another trigger for the market is prospects of further softening of interest rates by the US Federal Reserve.

Market is expecting a populist budget from the United progressive Alliance (UPA) government this year, considering that the parliamentary elections are due in 2009. Thus, the Finance Minister is likely to provider higher allocations to several social initiatives like rural upliftment, employment, education, agricultural growth and public health.

If the budget is market friendly, the sentiments may turn positive in the immediate term at least. Expectations are that the corporate income tax rate may be cut or the 10% surcharge on corporate tax may be abolished. Another possibility is that of a cut in dividend distribution tax from 15% to 12.5%. Meanwhile, FM may raise the Securities Transaction Tax slightly.

Sectors like textiles, garments and IT-enabled services may see some upside if the government provides a relief package for these export-oriented industries, which have been hit by the surge in the rupee in the last one-year.

Automobile stocks may be in focus next week as the government is likely to reduce excise duty on cars and motorcycles. Lower excise duty will help companies reduce the price of the vehicles, which may boost sales.

Possibility of a recession in the US economy looming large and with no end to bad news regarding US sub-prime mortgage crisis, weak global market sentiments may weight on the domestic bourses.

The 30-share BSE Sensex slipped 766.18 points or 4.23% to 17,349.07, in the week ended 22 February 2008. The S&P CNX Nifty lost 192.15 points or 3.62% to 5110.75, in the week.

The BSE Small-Cap index lost 25.72 points or 0.27% to 9,595.41 in the week. The BSE Mid-Cap index rose 2.37 points or 0.03% to 7,594.45 in the week.

Inflation based on the wholesale price index (WPI) rose to 4.35% for the week ended 9 February 2008 from 4.07% in the previous week, data released by the government on Friday showed.