What is your trading view on the market for 02 February? Do you see the rally getting back to 50,000 on the Sensex?

Trading on Budget Day started off on an optimistic note but by the close the optimism on the budget announcements was going absolutely berserk. Despite the fiscal deficit stretching to 9.5% of GDP it did not make any dent on the market sentiments. It looks more like a short covering rally that may be having more legs to it.

In a way, the budge was bold and that is what markets were impressed by. For example, announcements like the creation of Bad Bank, DFI structure for funding infrastructure in a big way, major boost to privatization as well as to monetization helped. The proposal to enhance FDI in insurance to 74% also improved sentiments in the market.

If you look at the foreign investor buying it was not really proportionate with the size of the rally. FPIs were net buyers of Rs.1,494 crore while DFIs sold Rs.91 crore on 01 Feb. The net buying was actually quite small and it does look like there were a lot of short positions that rushed to cover and could squeeze more shorts in the coming days.

In terms of trends for Tuesday, trading on 01-Feb was buoyant in markets across the world. For instance, NASDAQ was up 2.6% on Monday, Dow was up 100 bps while the European markets up over 150 basis points. The SGX Nifty is also up 70 bps in early trades, hinting at a strong opening, but short covering could really play a big role.

A number of investors have been asking as to what is positive about a budget announcement that spikes fiscal deficit to 9.5%. The answer perhaps is that the budget has been transparent about the deficit and despite budgetary constraints, the budget has tried to be as reformist and bold as possible. That has gone down well with markets.