By Milan Vaishnav
Indian Union Budget 2021-22: The Union Budget is one particular of the most essential domestic external events that influence the markets. The year that has gone by involving the earlier Union Budget and the upcoming one particular slated to come up on the 1st of February has stayed very eventful. The headline Index went on to slip to 7511-mark and then staged an equally astounding rally which saw the Index falling just quick to doubling itself from that level. In the method, we also saw the BSE Sensex testing the historic 50,000-mark, which was unimaginable at one particular point following the rout triggered by the pandemic in the very first quarter of 2020.
It is particularly essential to note that the present rally in the equities has been the outcome of a higher danger-on setup that has been in spot due to serious weakness in the US Dollar. The US Dollar index has been at its multi-months low the Dollar weakness usually final results in Emerging Markets seeing more robust FII inflows. India has been a no exception to this.
As we strategy the Union Budget in one particular week from now, we will require to alter the way we strategy the markets as we strategy the Budget day and for a handful of days immediately after that. Finance Minister Nirmala Sitharaman has been promising a “never-before” sort of spending budget having said that, the technical setups in the markets must not be ignored. An examination of the sectoral setup in the markets presents an intriguing view.
Over the earlier week, immediately after the Sensex tested the historic 50,000-mark and with NIFTY falling a small quick of 15000 (a higher of 14753), the markets have shown prominent indicators of taking some breather. This is additional confirmed by the Relative Rotation Graph which shows the present structure of the sector rotation taking place in the markets.
It is evident that that higher beta names such as BankNifty, Private Banks, and Financial Services Index which is nonetheless in the major quadrant are seeing sharp paring of Relative Momentum when benchmarked against the broader NIFTY500 Index.
In the similar breath, if we appear at the traditionally defensive sectors like FMCG, Consumption, and also at Energy Index, it seems that they are observed sharply enhancing on their Relative Momentum front and are placed in the enhancing quadrant. This points at the probably finish of their relative underperformance against the broader markets. The Pharma Index, which is in the lagging quadrant and the IT Index which is in the weakening quadrant are also seeing sharp improvement in their relative strength.
This tends to make an intriguing observation that the intelligent revenue is moving from the higher beta sectors to the defensive ones. Regardless of any sharp moves that we could see ahead of the Budget and immediately after that, it would be prudent if the traders and investors concentrate more on the defensive bets rather than chasing the higher beta names.
Focusing on the very good high quality stocks which have not run up as well difficult in the earlier quarter and the ones that have an enhancing Relative Strength will go a lengthy way in adding a protective layer and assisting strategy the Budget with a steady danger-reward proposition in spot.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services. Views expressed are the author’s personal.)