Union budget to steer markets ahead; health, infra, housing sectors in focus

Asian shares wavered on Monday amid worries that problems with vaccine rollouts combined with new strains of covid-19 will delay a global economic recovery that has already been baked into the market’s rich valuations.

Announcements made by finance minister Nirmala Sitharaman for Union budget for FY22 on Monday will steer the markets ahead. Trends in the SGX Nifty suggest a mild positive opening for Indian benchmark equity indic.

Asian shares wavered in early trade amid worries that problems with vaccine rollouts combined with new strains of covid-19 will delay a global economic recovery that has already been baked into the market’s rich valuations.

According to analysts, the Union budget will require policymakers to look beyond convention measures to strike a balance between nurturing a nascent growth recovery and diminishing fiscal space getting more acute. The markets will watch out how the government prioritises growth in the budget against backdrop of a pandemic and gross domestic product contraction.

“We expect the focus of spending to be on healthcare, housing and infrastructure. Real estate revival is already underway and driven by genuine demand this time as low interest rates and stable real estate prices have improved affordability; government has the potential to design targeted incentives as a revival in real estate capex will have benefits throughout the economy, Rahul Singh, CIO-Equities, Tata Mutual Fund said.

Sectors with high job creation potential may see calibrated measures while tweaking income tax may also aid in boosting consumption, according to analysts.

“Key would be improving the sentiments of consumers/businessmen. Only if the budget is pathbreaking in terms of policies (government spending, divestment, revenue raising or capital market friendly) the current upmove can sustain beyond a point," HDFC Securities said.

The Sensex has lost nearly 8% from the record high of 50000, in one of the tumultuous sharp fall of stock markets last week. This year, Sensex lost 3% in a month before the budget is presented in parliament while it slipped 4% last year. In three out of five times, the Sensex has given negative returns in a month prior to the budget.

Meanwhile, dealers in the global markets were also warily awaiting new developments in the headline-grabbing battle between retail investors and funds that specialise in shorting stocks.

Doubts have also emerged about the future of President Joe Biden’s $1.9 trillion relief package, with 10 Republican senators urging a $600 billion plan.

The jitters in stocks caused only a brief ripple in bonds with treasury yields actually rising late last week, perhaps a refection of the tidal wave of borrowing underway. A record $1.11 trillion of gross Treasury issuance is slated for this quarter, up from $685 billion the same time last year.

Early Monday, U.S. 10-year yields held at 1.07% and near the recent 10-month top of 1.187%. Higher yields combined with the more cautious market mood have seen the safe-haven dollar steady above its recent lows. The dollar index stood at 90.628, having bounced from a trough of 89.206 hit early in January.

The euro idled at $1.2121, well off its recent peak at $1.2349, while the dollar held firm at 104.74 yen. Gold followed silver higher to $1,853 an ounce, but has repeatedly stalled at resistance around $1,875.

Global demand concerns kept oil prices in check. US crude eased 30 cents to $51.90 a barrel, while Brent crude futures dropped 20 cents to $54.84.
 

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