Retail hopes ride high, smart money waits. What's next for markets after budget?

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Subscribe to enjoy similar stories. Dear reader, Last week, I wrote that the coming weeks would be crucial for the markets. There are still enough pending news triggers in the pipeline to influence sentiments significantly enough to provide some surprises.

The US Fed kept rates unchanged along expected lines. The cost of funds will probably rise further before they ease. At the time of writing this piece, the budget was a minor trigger for the markets.

The new Income Tax Act is yet to be announced, and the fine print of the budget is yet to be dissected. The tax exemption threshold being raised is a welcome step, though the real benefit accruing to a tax payer needs to be examined under a microscope. Two things about the budget and its possible fallout caught my attention.

Firstly, higher credit availability to the agriculture and MSME (micro, small and medium enterprises) sectors. These sectors fall under priority sector lending (PSL) regulations. Every banker must lend at least 40% of his entire loan book to the PSL segment.

The noteworthy point is that this is a segment with a higher-than-average delinquency ratio, and is also politically sensitive. That means markets can get worried about the prospects of banking and financial sector stocks. These stocks command a whopping 34.60% weightage in the broad-based Nifty50.

This swing sector can sway the broader markets, and if sentiments turn nervous, the market can erode further. The second noteworthy point is the estimated gross borrowings of ₹14.82 trillion, out of which ₹11.54 trillion would be from dated securities. Some portion of the borrowings would be met from small savings schemes and other public savings.