Budget to Decide Market Direction: Ramesh Damani

Ramesh Damani, member of the Bombay Stock Exchange (BSE), expects the upcoming union budget to decide the fate of stock markets in the medium term.

"The budget will give some direction (to market). (Raghuram) Rajan has laid out the ground work that are we going on a path of fiscal expediency or are we going to reorient to make a smart economy," said Mr Damani.

The stock market veteran was alluding to Dr Rajan's signal that further monetary easing depends on the budget. There's growing speculation that the government may relax its fiscal consolidation path and boost public spending. Such as move may hinder further monetary easing by the RBI, say analysts.

The government wants to restrict the fiscal deficit to 3.5 per cent of GDP in 2016-17 and 3 per cent by 2017-18. But some economists are calling for a boost in public spending because of sluggish private sector spending.

"We will have to see the choices government makes... We will have some radical choices available to the government," said Mr Damani.

The budget comes at a time when domestic stock markets and currency have come under relentless selling pressure, largely because of global factors such as a sharp fall in commodity prices and the slowdown in China - the world's second largest economy.

The Sensex and rupee have witnessed a selloff as foreign institutional investors pulled out over Rs 11,000 crore from equities - the biggest outflow in the first month of the year since January 2008.

"A large portion of our holdings are held by sovereign wealth funds and because they are facing pressure at home, they are selling to get liquidity," Mr Damani said.

The volatility in stock markets gives investors a great opportunity to buy stocks, he added.

Although sectors like energy and metals are unlikely to see an earnings recovery soon, other sectors like aviation, cement, auto, pharmaceuticals, rail and road infrastructure are likely to witness earnings growth, said Mr Damani.