The 2022 budget is expected to increase market volatility; Top choice ICICI Bank, L&T and SBI

Jayesh Bhanushali, AVP, Research, IIFL Securities, said he expects markets to remain under some selling pressure for the February series.

In an interview with Kshitij Anand of Zeebiz, Shah said that we have entered a bullish sell market. With the US Fed expected to raise interest rates and shrink its balance sheet by early March, system liquidity is expected to decline. Edited excerpts:

Q) US Fed tracking worries Sensex and Nifty50 fell more than 1.5% ahead of budget week. How do you see the markets in the coming fiscal week?

A) Currently, we have entered a bullish sell market with the US Fed expected to raise interest rates and shrink its balance sheet by early March, which would remove liquidity from the system. We expect markets to remain under selling pressure for the February series.

Q) FIIs remain net sellers for over Rs 30,000 cr in the spot segment of Indian equity markets – what is causing the panic – is it the US Fed or the 2022 budget?

A) It wasn’t just Fed nervousness in the United States or fiscal uncertainty, we had several geopolitical events like the increase in the conflict between Russia and Ukraine leading to a war-like situation , with the dollar index breaking above $97 and Brent crude above $90/bbl, along with rising inflation globally.

All these reasons and the absence of any positives have led FIIs to sell continuously in India.

Q) Based on the January expiry, how do you see the markets in the February series? What are the important levels to follow?

A) Weaker hands become more bullish on stocks ahead of Union Budget 2022. The net long trend on OI in the Client (Retail) category continued in equity futures with net long OI at 1422.4k contracts versus 1265k contracts at the start of the January series.

Stock futures roll levels, in general, were under pressure during the week of expiration and averaged between 29 and 34 basis points (cost for long rolls). In terms of open interest (OI) positioning, REITs will start the February series as net short on index futures (43.5k contracts) and net long on equity futures (10. 18k contracts).

The Nifty50 should not break 16400, otherwise it will lead to a lower upper lower lower chart structure.

Q) Should one consider buying after budget day to avoid volatility and clarity?

A) The budget is likely to increase market volatility. If one is a long-term investor, one should invest in value stocks and sectors that perform well in rising interest rate scenarios.

Also, one should invest in long-term quality stocks with low betas to protect their portfolio from increased volatility.

Q) In terms of sectors, Banks and Autos managed to outperform and IT and Real Estate stocks fell. What led to the price actions? What is causing panic in the IT space?

A) The banking sector has shown a lot of strength in the current fall. Indeed, the market had anticipated the underperformance of bank stocks due to the covid-induced lockdowns, leading to an increase in NPA and provisions.

At the time of the third quarter earnings announcement, most banking stocks showed strong performance, ranging from higher revenues and earnings to lower NPA and provisions.

Similarly, the automotive numbers weren’t as bad as expected, and with many companies announcing plans for electric vehicles, we also saw some strength in this sector.

Historically, we have seen that when the IT index has given 8 consecutive quarters of growth, it has underperformed for some time thereafter.

Currently, we are already in 7 consecutive quarters of growth and therefore volatility has started to increase.

While real stocks are under pressure as periods of rising interest rates do not bode well for new home buyers.

Q) Budget choices that investors can consult?

A) We have a purchase on 2 bank stocks and 1 on Infra. The budget choices for a long-term investor are:

1. ICICI Bank: Buy with a target of 950.
2. SBI: Buy with a target of ₹640.
3. LT: Buy with a target of 2436.

(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)