Watta damp squib!!!

That was the reaction i had after listening to the Finance Minister's budget speech.Even as the speech was only halfway through, i had the feeling markets would sell off. And even at this moment, the benchmark indices have shown a big thumbs down to the budget the Nifty down 209 points and the BSE Sensex down 700 points.

The budget was a reality check for investors who thought big bang reforms were almost a certainty, given the thumping majority for the UPA in the general elections. What caused the sell off?? The primary reason in my view is a lack of action on two major areas 1) Infrastructure spending 2) Disinvestment. It was expected infrastructure spending would be upped significantly, though there was an announcement of increased spending it did not have the tone markets were expecting. Disinvestment was by far the biggest disappointment. The fiscal deficit is also expected to be higher than was anticipated by the markets. Foreign direct investment and the lack of clarity on the fuel pricing mechanism were also significant negatives.

I am not surprised if we see the Indian market cracking further under the weight of selling pressure, especially from FII's. What was touted as a dream budget, turned out to be a nightmare on account of inaction, well almost!! Needless to say investors who were shouting from roof tops on the renewed potential in India are likely to have a relook at their stance. Clearly the market had run ahead of itself in amassing expectations, there was a risk even a small deviation from expectations would result in a sharp knee jerk reaction. And this seems to have materialized. It needs to be remembered the Indian story is still intact, the short term weakness is a readjustment to reality.

What next from here? I expect the Indian market to possibly undergo a re-rating, even slight de-rating in the short term as brokerages review their "outrageously" bullish outlooks in the post budget scenario. Banks and infrastructure are two sectors which look vulnerable to me in the short term, especially after having witnessed sharp run ups over the past few months.

Global markets pose another significant risk to the market performance going ahead. True, the global risk always persisted somehow the domestic market performance was somewhat oblivious to international markets given a strong emphasis on India being a "domestic demand" driven economy. This hypothesis will surely be tested over the next 9-12 months. Meanwhile, the best thing to do for now is to wait and watch how the market behaves after the initial reaction which might last about 4-5 days.