Market may remain volatile ahead of Budget

Institutional investors are likely to remain on the sidelines with just a few days left for the presentation of the Union Budget 2010-2011 in parliament on 26 February 2010. The key focus of analysts and economists in the budget are a roadmap for implementation of the goods and services tax (GST) and direct tax code (DTC), exit from the fiscal stimulus, roadmap for exit from the stimulus measures, the government's borrowing programme for 2010-2011 and steps to reduce fiscal deficit which will have a bearing on interest rates. It also remains to be seen if the government announces new modes of financing the country's massive infrastructure investment.

A first step towards withdrawing the post-crisis fiscal stimulus may reportedly be taken in the Union Budget for 2010-11, with an increase in the Cenvat (Central value added tax) rate for excise duty by 2 percentage points. The government had reduced the Cenvat rate for excise duty from 14 to 8% - in two rounds, by four percentage points in December 2008 and two percentage points in February 2009. Analysts reckon that a phased withdrawal of fiscal and monetary stimulus in a gradual manner could help sustain the ongoing economic recovery.

Before the budget, the performance of global markets may dictate the near term trend on the domestic bourses. Global markets have recovered after a sell-off triggered by unwinding of dollar carry-trade. The dollar surged against a basket of six major currencies as fiscal woes of some the euro zone nations such as Greece and Portugal came to the fore. As per media reports, European Union leaders will lay the foundations for a financial bailout of Greece at a summit in Brussels on Thursday, 11 February 2010.

Foreign funds have pressed heavy sales of Indian stocks in early 2010. As per data from the stock exchanges, foreign institutional investors (FIIs) sold stocks worth a net Rs 11350.25 crore in calendar 2010 so far (till 10 February 2010). In contrast, domestic institutional investors (DIIs) have bought equities worth a net Rs 15146.54 crore this year so far.

The government will unveil industrial production data for December 2009 on Friday, 12 February 2010. The stock market remains closed on Friday on account of Mahashivratri. Industrial output rose a robust 11.7% in November 2009. On Monday, 15 February 2010, the government will unveil data on headline inflation in January 2010.

As regards government's divestment plan, Rural Electrification Corporation (REC) will be the next Government-owned entity to come out with a follow-on public offer (FPO). Its 17.17-crore share follow-on public offer (FPO) will open for bidding on 19 February 2010 and will close on 23 February 2010.