What is your view on the markets for 19 January, Tuesday? Do you see the correction in the Sensex and Nifty continuing?

You are right that the correction has been really sharp in the last two days. This is despite this being a very robust results season. The Sensex has lost 1050 points and the Nifty has lost over 350 points in just two days flat. The markets are most likely worried because the VIX or the volatility index has gone up sharply, indicating fear in the market.

Considering that most of the frontline results have been robust, the correction can be substantially attributed to the pre-budget worries and that too is largely over the fiscal deficit number. With just about 10 days to go for the budget, there are concerns that the fiscal situation may force the budget to disappoint in terms of reforms.

Fortunately for the market, the global portfolios are continuing. FPIs were net buyers of Rs.651 crore while DFIs sold Rs.43 crore on Monday, the 18 January. The positive feature appears to be that even in the midst of the correction in last 2 days; the FIIs have infused Rs.1600 crore into Indian equities, which shows that correction is more by trade positions.

On the global front it has been a mixed day on Monday. The US markets corrected on with the Dow and the NASDAQ losing nearly 40 bps but the European markets were largely mixed. The good news is that Asia has been robust in early trades on positive GDP news from China. Even the SGX Nifty is trading up nearly 70 basis points in early trades.

The correction appears to be driven more by the fear factor. The market is interestingly poised apart from the risk perception ahead of the budget. This is going to be a tough budget with all the fiscal constraints. However, as we have seen in the past, this government has managed to deliver a positive surprise when the chips are down. Budget may still be reformist.