In a volatile trading session, equity benchmark indices closed 1% lower on Friday ahead of Budget 2021. Sensex ended 588 points lower at 46,285 and Nifty fell 182 points to 13,634. Let us look at the events that may drive the market in the truncated week ahead.
Union Budget 2021
Finance Minister Nirmala Sitharaman is set to present Union Budget 2021 on February 1, 2021, amid hopes that she would take a balance between populism, reform and growth under a weak fiscal position. Experts are of the view that the government has a unique opportunity to make structural changes that will have an immediate short-term impact given the COVID-19 pandemic. The fiscal consolidation path, the borrowing plan, the demand side measures, divestment plan and incentives for exports could be other points to watch out for in the budget.
RBI monetary policy
The three-day meeting of Monetary Policy Committee, the panel which set the interest rate, will start on February 3 and conclude on February 5. Consensus polls suggest that the central bank is expected to maintain status quo and keep the monetary stance accommodative at the policy review though it will take guidance from the Budget to be unveiled on February 1. While not much is expected on the interest rate front, the market will be more concerned about what the central bank has to say about domestic liquidity and its outlook on bond-buying to support government bond yields.
Over 470 companies are slated to release their earnings for the December quarter. Nifty50 companies, including Housing Development Finance Corp, Mahindra & Mahindra, Bharti Airtel, Divi’s Laboratories, Hero MotoCorp , State Bank of India and others will be in focus as they report their numbers over the week.
Auto sales numbers
Most of the major auto stocks will report their monthly sales numbers on February 1. Investors will keenly analyze through the data for signs of further demand recovery in the sector. Auto companies delivered better-than-expected volumes in December amid strong demand even after the festival season.
PMI data for the manufacturing and services sector is also lined up this week. While manufacturing PMI will be released on February 1, services PMI will be out on February 3. The Markit Manufacturing PMI at 56.4 in December 2020 increased from 56.3 in previous month, indicating continued improvement in business environment.
The foreign investors turned net sellers last week amid weak global cues and concerns regarding Budget outcome. The FIIs sold Rs 12,096.69 crore worth of shares in the week ended January 29. In contrast, domestic institutional investors turned net buyers with net purchasing of Rs 3,788.98 crore of shares last week.
Wall Street’s main indexes tumbled Friday as volatile trade in a batch of small, heavily shorted companies raised broader concerns about a bubble in a market. The Dow Jones Industrial Average slumped 620.74 points, or 2%, to close at 29,982.62, the S&P 500 lost 73.14 points, or 1.9%, to 3,714.24 and the Nasdaq Composite slumped 266.46 points, or 2%, to end at 13,073.64
Stocks came under pressure again Friday, as surging prices on a small group of heavily shorted stocks continued to take oxygen out of the market as hedge funds covered short positions and reduced exposure to other stocks to reduce risk. GameStop shares rose another 67.9% on Friday, a gain on the year of 1,625.1%, after trading app Robinhood said it would allow limited purchases of the stock. Robinhood restricted trading Thursday of GameStop and others caught up in a wave of buying by individual investors spurred on by a Reddit message board.
Thursday, the day traders' go-to app Robinhood curbed trading in GameStop and other popular companies such as AMC, Bed Bath & Beyond and BlackBerry, saying it was too volatile. The move prompted outrage from amateur investors and a rare show of bi-partisanship as US politicians decried an intervention they said was designed to help Wall Street firms who were being hammered.
Worries about vaccines and the economy have also hit stocks and helped the dollar over the last week. Joe Biden's administration has pledged to speed up the vaccination drive as states complain of shortages. In Europe a spat between the EU and AstraZeneca has broken out over vaccine delivery.