Market Oulook: All eyes on the Budget

There has been some respite on the global front as the European Union granted a four-month loan extension to Greece. This will be a big positive for the market in the short-term.

Until last week, there were concerns that the uncertainty over Greece moving out of the Eurozone and the domino effect thereafter could have a huge impact on Eurozone and the world markets.

Though the Greece crisis isn't over, there are hopes that things will move in the right direction and the country may come out of the crisis.

Barring Fed Chairman Janet Yellen's semi-annual monetary policy to the Senate Banking Committee on Tuesday, February 24, 2015 and House Financial Services Committee on Wednesday February 25, 2015, there are no major developments in the global market. This will see the focus completely shifting to the domestic developments in India.

To begin with, the market will closely follow the Rail Budget on Thursday, February 26, 2015. The market expects the Rail Budget to launch a plethora of initiatives along with an improvement in its finances.

The rail Budget will be announced ahead of the futures & options (F&O) expiry for the month of February 2015. The market will remain volatile ahead of the expiry and the roll-over position in the F&O from February 2015 series to March 2015 series will depend on the Rail Budget.

However, all eyes, especially those of foreign institutional investors, will be on Saturday, February 28, 2015 when the finance minister announces the Union Budget for 2015-16.

It is very important for the finance minister to announce a Budget that will kick-start its reform process as well as see to it that he doesn't get overboard on its spending and impact the country's deficit.

The government has signalled time and again that it stands for growth and the spending focus will be more from developmental and growth aspect than social spending.

But it will have to be seen how the government plans its spending in the Budget that will promote development and start the investment cycle. Balancing fiscal consolidation with the need to boost growth through expenditure holds the key to the Union Budget.

The Indian equity market is working on the Budget day, which is a Saturday. A few things that the market is expecting from the Budget is a clear roadmap to GST, incentives for manufacturing, solving the special economic zone (SEZ) imbroglio, and simplifying taxation rules including changes in rates of dividend distribution tax, capital gains tax on sale of shares, securities transaction tax (STT) and minimum alternate tax (MAT).

Meanwhile, the Indian market is trading close to its historic higher range of price to earnings (P/E)  multiple. In the past, it has corrected by 15-20 per cent from this range, therefore one has to tread cautiously in the current week.

The market today trades close to P/E of 24 times, while the historic high is around 28 times. In fact, sitting on the sidelines could be a better option and once the Budget uncertainty is over, one could take a call on the Indian market.