Budget 2022 likely to increase volatility in market; ICICI Bank, L&T and SBI top picks

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

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

Q) Tracking US Fed jitters Sensex, and Nifty50 fell more than 1.5% ahead of the Budget week. How do you see markets in the coming Budget week?

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

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

A) It was not just the US fed jitters or Budget uncertainty, we had several geopolitical events like Increased conflict between Russia and Ukraine leading to war a like situation, the Dollar index rising above $97 mark and Brent crude rising above $90/bbl, along with rising inflation globally.

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

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

A) Weaker hands getting more bullish on stocks ahead of the Union Budget2022. The net long OI trend in the Client (retail) category continued in stock futures with net long OI at 1422.4k contracts vs 1265k contracts at the start of the January series.

Roll levels across stock futures, in general, were under pressure during the expiry week and averaged 29-34bps (cost to long rollers). In terms of open interest (OI) positioning, FPIs will start the February series as net short in index futures (43.5k contracts) and net long in stock futures (10.18k contracts).

The Nifty50 should not break 16400 else it would lead to a lower top lower bottom chart structure.

Q) Should one consider buying post the Budget Day to avoid volatility and clarity?

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

Also, one should invest in quality stocks for the long-term having low beta to protect their portfolio from heightened volatility.

Q) In terms of sectors, banks, and auto managed to outperform and IT and Realty stocks tumbled. What led to the price actions? What is causing panic in the IT space?

A) The Banking sector has been showing a lot of strength in the current fall. This is because the market had anticipated underperformance of the banking stocks due to covid induced lockdowns leading to higher NPA and provisions.

As the results for Q3 were announced, most banking stocks have given a strong performance ranging from higher income and profits along with lower NPA and provisions.

Similarly, the Auto numbers were not as bad as expected, and with many companies announcing plans for EV, we saw some strength in that sector as well.

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

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

While the reality stocks are under pressure as rising interest periods don’t bode well for the new home buyers.

Q) Any Budget picks that investors can look at?

A) We have a buy on 2 banking stocks and 1 on Infra. The budget picks 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: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)