Budget 2018: Waiting for a dip? 10 years’ data shows Nifty rising up to 9% in following month post Budget

Investors’ are advised to remain stock-specific and avoid leverage play at current levels. They should sit on some cash which could be deployed on every dip.

    

Are you looking to enter the market but unsure about the timing? Is this market expensive? Are you waiting for a decline to enter? If you constantly ask these questions to yourself, then you are not alone.

Investors are waiting for a decline to commit fresh capital, but will the decline come in 2018 post Budget, especially after a strong rally seen in the equity market so far this year?

Well, history says otherwise. If you are waiting for a decline, chances of that happening are low based on anecdotal evidence. In the last 3 out of 10 years, Nifty rose in the month post Budget.

However, the trend is reverse if we look at 1-month ahead of the Budget wherein Nifty slipped in 6 out of last 10 years in the run-up to the big event.

The Nifty rallied 9 percent in the following month post Budget in year 2016, followed by 7 percent gain in the year 2010 and 2011.

Even the Economic Survey released on Monday highlighted some risks for the equity markets such as fund flows, higher crude oil prices, as well as high valuations. But, the way markets reacted and hit fresh record highs, looks like it has taken everything in stride.

This time, market volatility in the pre-budget period is the lowest as compared to the past 10 budgets. This indicates that unless the event springs up a huge surprise in terms of a surge in fiscal deficit estimate or a regressive measure such as a retrospective LTCG (long term capital tax) regime, we do not envisage market volatility will increase post budget, ICICI Securities said in a note.

Is sell on news possible?

With history suggesting fall in the preceding month, there was always chance of a bounceback post this event.

However, in 2017, Nifty rose 11 percent ahead of the event and rose 3 percent post the event in the next one month. But, for 2018, analysts are expecting some profit booking to trigger post the Budget.

One possible reason for the rally in 2017 was the fact that the index was reeling under the pressure of demonetisation as well as US elections. Hence, 2016 closed with mild positive bias.

However, for the year 2018, the conditions are opposite. We saw a strong rally in the year 2017 and in January as well. Hence, the possibility of some profit booking cannot be ruled out.

There has been a possibility of some profit booking since the last couple of months. But it seems that the market is in no mood to give any respect to recent hurdles.

However, the important event is around the corner now and the index has reached the important level of 11100 (161% Price Extension of the rally seen in 2008-2010). This level needs some attention and hence, a possibility of ‘Exit on News’ kind of scenario cannot be ruled out post the budget.

What should investors do?

Investors’ are advised to remain stock-specific and avoid leverage play at current levels. They should sit on some cash which could be deployed on every dip.

Short to medium term investors should look to take some money off the table in this rally. One can never predict a precise top and hence, it is always a prudent strategy to be safe than sorry, said Chavan of Angel Broking.

Analysts’ see Nifty climbing all walls of worries and hitting Mount 12K by December 2018. But, this time the leadership will be different, suggest experts. High beta small and midcap stocks which led the rally could see some pressure while largecaps could lead the rally on D-Street.

We see Nifty at 12,000 levels by December 2018. The last rally was led by small and midcap stocks but this time it can be largecaps which will contribute to the new highs in the market.

Yes, profit booking can be there in March. Investors can adopt buy on dips strategy. The current rally is the part of strong Q3 earning and expectations from upcoming Budget. Investors should remain invested in quality stocks and quality management.

Ashar further added that in bull markets, corrections are fast and the recovery is also fast. I don’t feel there is any problem at current levels but in case it drops towards 11000 which is “the shagun" level.

MORE WILL UPDATE SOON!!