Markets have surged up like a rocket after union budget announcement. Budget is neutral so there is no specific reason why market should surge like this. Markets rose for second consecutive days with Sensex closing at 18446.50 up by 623.10 and Nifty closed at 5522.30 up by 189.05 points. Stock markets witnesses a spectacular rally and auto along with banking stocks were the hottest picks. This is the highest single day gain in last two years. But still most of the analyst are skeptical about this rally and suggest caution.
Markets may gain some more points from here and but at this moment they are not appropriate for fresh long positions. Budget has been somewhat ok and there are no clear visible triggers for market to climb up so fast. Indian stock market are positive for long term but in short term, they are full of uncertainty at the moment. big corrections cannot be ruled out after this rally and one should use them as opportunity to pick good stocks.
Due to increased fiscal deficit and heavy subsidy burden, markets are unstable at the moment. Crude is already trading in the higher range. If crude cools off and there is some clearly on fiscal deficit management, then markets can gain some confidence. Though, on other hand, if crude rises above current level then FIIs would be forced to withdraw money from indian markets which will again trigger fall in stock market.
Over the years, indian stock markets have become completely dependent on Foreign institutional investors. This has increased its vulnerability. Indian markets are far more susceptible to the damage from the happenings outside whereas indian growth story is still intact. Recent turmoil in middle east have increased the crude prices and it doesn’t seem to end soon so one cannot rule the further hike in crude.
Markets have corrected lot from its Diwali highs therefore portfolios are still bleeding and this rally will help those traders. They will start exiting and this will cause the another round of correction. So, one should wait for some more time and if markets continue to trade in the upward direction, then investors can be optimistic for short term.
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