What the Charts Foretell

Pre-emption of the likely announcements in the Budget begins from the month of January itself and this can be borne out in the movements during the past two years. By clubbing the various sectors under broad heads, we have attempted to analyse the movements of sectors before and after the Budget over the past two years. Further, we have tried to gauge market expectations from the Budget based on the movement of sectors in these broad categories from January. And based on our expectations, we have given our recommendations on the likely movement in these sectors post Budget.

The five broad parameters and the likely interpretation for the same are given below:

· Broad economy bellwethers: These are the sectors, which have the highest correlation with the broad economy. Logically therefore, the movement of stocks within such groupings would depend on the thrust given to the general economy in the Budget.

· Consumer spend indicators: Such a group could be mutually exclusive from the above-mentioned category, though the linkages between the two could be high. While its true that a buoyant economy would lead to a rise in consumer spending, the converse may not hold true in all cases. Instances could be of lower tax rates or better financing terms.

· Agro sector harbingers: Though the correlation of rural spending with the broad economy would be the highest, steps for improving the infrastructure available to farmers (be it irrigation facilities, more effective targeting of financing or rural electrification, ensuring the realisation of better prices for agro produce), could on their own lead to a rise in rural demand though this may not necessarily reflect in the overall economy (as of today, the farm sector has a mere 30% share of the total GDP).

· Automation avant-garde groups: These groups depend on government spending on infrastructure and the sops given to the private sector for the same. FDI too would have an impact on companies in this set since, generally, new facilities install state-of-the-art equipment for faster turnaround and better global networking.

· Liberalisation leader: Apart from the above four classifications, a fifth category would be those sectors, which are controlled by the government. Hence, for any significant change in their earnings growth, reducing the yoke of controls would be critical. Else, these companies would continue to earn fixed returns on their investments.

Broad economy Bellwether :

Surprisingly, most of these stocks (barring construction) have been outperformers this time around. In the past two years, all of these sectors except generators were outperformers after the Budget.

Consumer Spend Indicators :

All stocks here except Personal care are Underperformers. In the previous Budget, all except cables were underperformers after the Budget.

Agro Sector Harbingers :

Automation Avante Garde groups :

The IT sector has traditionally posted the maximum gains pre-Budget only to decline or perform along with markets post Budget. Looking at the fantastic gains posted this time around, it could come in for a major correction post Budget.

Liberalisation Leader :

A stellar outpetrformer (the Refinery sector in particular) this time around it could see a correction unless a phased dilution of controls announced.