Mumbai, Feb 27 

Union Budget announcements, combined with global cues, especially crude oil prices and rupee movements will chart the equity markets' next course.

Market observers predicted that stock prices will be driven by budgetary announcements, especially on how the finance minister balances the goals of fiscal consolidation and revival of private investments. 

"The economic survey has raised some hope of a reforms oriented budget. Outright populist measures would dent credibility of the government," predicted Devendra Nevgi, chief executive of ZyFin Advisors.

The Union Budget 2016-17 will be tabled in parliament on Monday. This will be the key driver for not only equities, but currency and bond markets as well.

Vaibhav Agarwal, vice president and research head at Angel Broking, said that investors would watch out for measures to eliminate tax distortions and improving ease of doing business. 

"Markets may react negatively if the holding period to claim long term capital gains from equities is increased," Agarwal told IANS.

Further, investors will look out for increase in investment spending, announcements for the rural economy which is suffering from two consecutive droughts and make provisions for the pay commission.

Finance Minister Arun Jaitley's statements on OROP (one rank, one pension) and FRBM (fiscal responsibility and budget management) targets would be closely monitored.

However, regulations on long term capital gains tax will keep investors glued to Jaitley's every word, said Pankaj Sharma, head of equities for Equirus Securities. 

"If there is a negative development on this, the markets could have a significant and immediate downside," Sharma cited.

"The other important points market would be focused will be the trends on fiscal consolidation, reviving the rural demand and increase public spending."

Volatility might exponentially flare-up as the markets digest what the Union Budget has to offer said Dhruv Desai, director and chief operating officer, Tradebulls.

"Advance and decline ratio is in the favour of bear, selling pressure may continue,” Desai told IANS.

According to Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, the outcome of the two-day G20 finance ministers' meet which ends in Shanghai, China on Saturday, will have some bearing on equity markets.

"Apart from the Union Budget that will dominate the sentiments on Monday, global cues could also influence sentiments," James noted.

"Markets would weigh in the comments emanating from the G20 finance ministers meeting."

Besides, volatile crude oil prices which dipped to around $30 a barrel (one barrel is equal to 159 litres), will determine whether investors chase stock prices or not.

"Oil has had wild swings between $26 and $30 a barrel in the last two weeks, and its direction could be equally decisive in giving momentum to the equity markets in the week ahead," James added.

Gaurav Jain, director with Hem Securities, said that "Trends in global markets, rupee-dollar movement and interest of foreign portfolio investors (FPIs) will dictate trend on the bourses."

"Indices may seem to remain volatile with positive bias in the week ahead."

On a weekly basis, the rupee weakened by 15 paise to 68.62 (February 26) against a dollar from its previous close of 68.47 (February 18).

This weakness is due to a massive outflow of foreign funds from the equity and debt markets.

The National Securities Depository Limited (NSDL) figures showed that the FPIs sold Rs.6,763.11 crore or $986.13 million in the equity and debt markets from February 22-26.

Data with stock exchanges disclosed that the FPIs divested stocks worth Rs.3,841.63 crore during the week under review.

Conversely, the data showed that domestic institutional investors (DIIs) bought stocks worth Rs.3,052.79 crore. 

"The rupee is expected to maintain a downward trajectory over the short-term. The Union Budget can either arrest the downward trend or accelerate it," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

"It would be interesting to see -- what kind of fiscal deficit targets are projected and expenditure limits the government sets out in the budget," Banerjee added.

Investors are hopeful that the central government may increase expenditure, announce tax concessions and pave the way to reduce the NPAs (non-performing assets) levels of the banking sector.

(Rohit Vaid can be contacted at [email protected])