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Trigger or non-event?

This morning I am scratching my head to figure what will be construed as a really positive budget from a capital markets point of view, writes Udayan Mukherjee.

india Updated: Feb 28, 2008 21:22 IST

Today's Union Budget comes at an interesting juncture for the market. The Nifty is stuck in the middle of a trading range and there are expectations that the Budget will lead to a directional move beyond that range. I imagine people expect it to nudge it past the 5400--5500 hump as it will take a really bad budget to spark off a 300 point Nifty selloff that drags it below 5000 immediately after the event. The budgets of earlier years don't inspire a whole lot of confidence but sometimes the market finds triggers when it is looking out for one.

This morning I am scratching my head to figure what will be construed as a really positive budget from a capital markets point of view. I doubt if there can be things like removing the short term capital gains tax or lowering Securities transaction tax or anything as direct as that. Sure, the corporate tax surcharge may be lowered but will that be good enough to spark off a big market rally? I doubt it. The Dividend distribution tax may be lowered but again, not potent enough to be a big trigger. He may, with an eye on inflation , cut some excise and customs duties and that may help a few sectors like auto and oil, but not the stuff to blow the lights out. Beyond these fairly top of mind issues, the budget is generally expected to focus on the common man and the agricultural sector. Individual income tax changes at the lower end of the pyramid may have some rub off on sentiment but will hardly be terribly material for industry or the stock market.

The biggest trigger for a break out could be the “event out of way, let's get on with it” syndrome. That theme certainly merits some attention. If indeed the market is done with base building for the moment and takes heart from the fact that global markets have been fairly resilient in the face of recent weak economic data, it is entirely possible that it may attempt a move once the event risk is out of the way. Now whether this is a powerful enough propellant to drive the Nifty conclusively beyond 5500 and keep it there is something we wait to find out over the next few days. Surprises happen when you least expect them, I just hope the FM will let the market make the choice without burdening it with any further straws.

Executive Editor, CNBC-TV18