The Sensex lost a staggering 1,200 points in 2-trading sessions, following the Union Budget. There were a number of worries, especially certain announcements that were made in the Union Budget.
Increase in public shareholding to 35 per cent
The minimum shareholding in companies has been increased to 35 per cent from 25 per cent. This means that companies where the promoters hold 75 per cent, would have to offer the public an additional 10 per cent. Several companies including the likes of Tata Consultancy, HDFC Life, Avenue Supermart and, Dabur might see a subdued movement going forward, as promoters begin offloading their stake. This is one reason that spooked the markets on Friday and Monday, as excess supply would keep pressure on the markets.
FPI selling due to IT surcharge
According to an Economic Times report, Foreign Portfolio Investors (FPIs) rushed to book profit after Budget fine print showed the hike in I-T surcharge will lead to a spike in long-term capital gains tax for overseas investors.
According to Monday's institutional trading data, there was selling by FPIs to the tune of Rs 404 crores. This is not very much, but, it is highly likely that the data would be more skewed toward the sell side, as numbers in the next few days could reveal.
Earnings the key
TCS would kick-start the earning season today. It is largely anticipated that IT and banking would do well. However, within banking, it is possible that the larger corporate banks may perform.
For FMCG and auto, it might be a struggle this quarter. If earnings falter, it would be tough for the markets to maintain the momentum going forward. The markets are already trading at 19 times one year forward earnings, which is high. Every rally would be sold into, on account of the high valuations. Earnings have to show dramatic improvement, for the markets to trend higher from here.
Time to rejig portfolio
It maybe time to take a re-look at your portfolio. Stocks that have been laggards, may need to be dumped. You may want to do away with the penny stocks and stay focused on the high quality names. However, some of these have become too expensive, as an example HDFC Bank and HDFC. There are beaten down names from the banking sector, that maybe good bets, especially the smaller private sector banking names. All in all, it is a sell on rallies market. If global cues take a turn for the worse, we may quickly be headed lower.