Is Budget real reason behind stocks rout? Why there is no relief in sight for Mr Market

The domestic equity market started the week on highly disappointed sentiments and Nifty registered the biggest one-day crash in last few years. Although some people cited the Union Budget as the reason, but actually the weight of high valuations itself caused this dramatic decline in the index. Nifty currently trades at a P/E of 29 times, which is at its all-time high. Under such circumstances, when the Budget didn’t give any immediate short-term growth boosters, naturally the market had to react negatively.

Auto and consumption stories seem to be tumbling like a pack of cards and macro factors are at the very core of this issue. Lack of sufficient liquidity to buy consumption products on credit or EMI and the changing dynamics in the auto space from internal combustion to electric are all adding to the already grieving economy.

Moving to the IT sector, TCS came out with a 10.8 per cent YoY growth in bottom-line and a 11.4 per cent growth in revenue in June quarter earnings. The company has kept its run rate intact albeit with slightly lower margins, but it is largely on track to deliver consistent growth in the foreseeable future.

Being the leader, it has set sectoral expectations this result season, which seems to be in line with market expectations.

Event of the Week
DHFL, DLF , ADAG group stocks and some others were successful in working out resolution plans with their lenders. Piramal Enterprises announced a plan to raise Rs 1,500 crore through NCDs. Given that such transactions are taking place, it can be reasonably presumed that the liquidity pain is easing, and sanity is returning to the credit market.

The market is also awaiting the Supreme Court verdict on Essar resolution plan. If the outcome is positive, this will further boost sentiment and ease liquidity.

Technical Outlook
After a steep fall, Nifty50 is consolidating, readying itself for the next leg of fall. However, the current consolidation can continue for a longer period as the earnings season has just started. The current support is very crucial, a breach of which may signal the beginning of a larger downfall.

The 11,400 level seems to be crucial, and a decisive penetration below this would lead the market much lower. Traders may initiate shorts on rallies or if the market breaks below 11,400.

Expectations for the Week
Global factors, the biggest being oil politics and unfolding of events on the Gulf, could have a bearing on Indian bourses if the situation worsens. US Fed Chief Jerome Powell is implying a rate cut at the next Fed meet at the end of this month amid concerns of softer business investments due to trade wars and weak inflation.

On the home front, the earnings season is set to get busier and company specifics could be key triggers for the next week. Results to look forward to next week are those of HDFC AMC, Federal Bank, Reliance Industries, HDFC Bank and others.

Investors must stand on the side lines with caution and not get into risky stocks which have high debt or high promoter pledge. Avoid auto and consumption sectors for now.

Nifty closed the week at 11,552, down by 2.2 per cent.