Policy reforms, sops and tax breaks? Volatility in key stock markets set to flare up as investors bet big on Budget 2021

Volatility in India's key stock markets are set to flare up as investors bet big on Union Budget 2021-22 to deliver policy reforms, sops and tax breaks.

In general, investors expect higher government Capex along with other fiscal expansion measures to drive growth and neutralise the impact of the Covid-19 pandemic. Besides, a string of macro-economic data, derivatives expiry and global cues such as US Fed policy will add to this volatility.

The Budget session of the Parliament would commence on January 29 with the presentation of Economic Survey.

"In India, trading would be volatile next week due to the F&O expiry ahead of the Union Budget on February 1. The coming week and the week after carry a lot of triggers that could move the markets either way," said Deepak Jasani, Head of Retail Research at HDFC Securities.

On the global front, the US Fed will wrap up its two-day meet on January 27 before announcing its interest rate decision.

"The US Fed monetary policy is due next week, which would be the first post the inauguration of new US President Joe Biden and thus would hold lot more significance," said Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services.

The US Fed is expected to retain its ultra-loose interest rates policy. This can potentially drive in more FII funds into the emerging markets such as India.

Apart from global cues, the week ahead will be heavily influenced by the corporate earnings for the third quarter of FY21.

Companies like L&T, Hindustan Unilever, India Cement, Marico, IndiGo, Axis Bank and Maruti Suzuki are expected to announce their quarterly results in the coming week.

"The ongoing earning season, which kicked off on a strong note last, week would further add to the volatility. Overall, the long term trend of the market is positive, and thus we would advise investors to keep accumulating quality stocks on any dips. However, traders are advised to be cautious and book profit intermittently," Khemka said.

According to Ajit Mishra, VP - Research, Religare Broking: "The coming week is a holiday-shortened one and we expect volatility to remain high due to the scheduled derivatives expiry. Markets will first react to the Reliance numbers in early trade on Monday. After two weeks of indecisive movement, we may see further slide ahead and a decisive break of 14,200-level in Nifty would derail the recent momentum."