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Jittery before the Budget
Mon, 22 Feb Closing

Strong bout of selling activity led to the markets giving up most of their gains during the closing hours of trade and end the day only marginally higher. While Sensex edged higher by around 45 points (up 0.3%), Nifty gained around 10 points (up 0.2%). However, BSE Midcap and Smallcap indices closed weak today, losing 0.6% and 1% respectively. Advance to decline ratio remained pretty even today with gainers and losers in the Sensex split rather evenly.

Most Asian stocks ended higher today whereas Europe has opened mostly weak. The rupee was trading at Rs 46.2 to the US dollar at the time of writing.

What started with a bang ended with a whimper today. The markets opened quite strong but by the time the closing bell was sounded, they had given up virtually all their gains. In other words, some investors used the rally to make themselves lighter and this put a dampener on any chances the markets had of ending on a buoyant note.

The strength in the morning could be attributed to global cues ahead of the Bernanke's testimony before the US Congress where he is expected to maintain the status quo on interest rates. This effectively means cheap money would be there for the taking and recovery efforts would continue. Also, crude oil witnessed a spike in its price, further strengthening the recovery theory. However, investors in Indian equities also had to put the upcoming budget into the equation and hence, the resistance could have been borne out of the fact that the government is considering rollback of some stimulus measures. All in all, the markets are likely to remain tepid till the time the budget is announced.

One sector that has benefitted immensely from the government stimulus measures is auto. Hence, it is only obvious that the auto makers want the stimulus party to continue as long as possible. After a couple of other automakers, it is now the turn of India's largest passenger car manufacturer Maruti Suzuki to appeal to the Government to start withdrawing the stimulus but only at a measured pace. The company's management is of the belief that if the entire stimulus is withdrawn at once, it may lead to a sub-par economic growth.

The domestic auto industry has grown at one of the fastest pace in recent times in the past few months and a good deal of credit for the same could be given to the excise duty cut initiated by the government as a part of stimulus program. But now, with the economy having recovered substantially and the government staring at a huge fiscal deficit, there is indeed a strong case for the rollback of stimulus measures. Given the things at stake, it looks most likely that the Finance Minister would choose the middle path i.e., undertake stimulus withdrawal at a measured pace. Auto stocks closed mixed today with gainers being Hero Honda and Maruti while TVS Motor and Ashok Leyland closed lower today.

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Feb 23, 2018 (Close)