Ever since returning as the Finance Minister, P Chidambaram has been instrumental in introducing a slew of reform measures to perk up a sluggish economy. A fiscally prudent and balanced budget is what the markets are expecting from the Finance Minister.

Chidambaram is likely to show a return to fiscal discipline by trying to restrict the fiscal deficit for FY13 as close to the target (5.3 per cent of GDP) as possible. Not only that, the Finance Minister will also reaffirm the government's intent in bringing the budget deficit lower in the years to come.

For instance, he has indicated that the Centre would lower the fiscal deficit below 5 per cent of GDP in FY14.

The markets would be interested in knowing the details of the Finance Minister's plan to slash the fiscal deficit going forward. The widening current account deficit (5.7 per cent of GDP in Q2 FY13) is also a cause for concern, and therefore the Finance Minister is likely to unveil some measures to rein it in over the next couple of years.

There could also be announcement on the possible timeline for the introduction of the goods and services tax ( GST) and the direct tax code. Further announcement is expected on how the government would contain subsidies, partly by way of direct cash transfers.

New Food Security Bill is also likely to be part of the Budget. The disinvestment target for FY14 may go up from Rs 300 bn in FY13 in the wake of the favourable response from the market to the stake sales done in the past few weeks.

Also, keep an eye on the possible announcement of intent on reforms related to land acquisition, increasing FDI in insurance sector and steps to boost the overall capex cycle.

Given the Finance Minister's repeated assurances, the Budget is likely to be in favour of the markets. However, markets may not appreciate a great deal immediately post the Budget given the macro-economic challenges.

On the whole, the Budget's influence on the markets has gradually diminished over the years, as the government is resorting to policy pronouncement(s) at a regular interval rather than packaging various measures in the Budget.

The Indian markets tend to rise in the run up to the Budget. However, the trend of the last five years shows that the markets fell 4 out of the 5 times in the 30 days prior to the Budget. From 2003 till 2007, Indian markets were up 3 out of 5 years in the 30 days before the Budget.

This time around, the Indian markets are looking a bit cautious, as investors appear to be taking a breather post the stellar rally witnessed over the past few months.

Valuation-wise, there is still some comfort, as the Sensex is trading at less than 14x FY14 earnings as opposed to historical average of 15-16x forward earnings. Also, the Indian markets have historically traded at higher-than-historic average and at a slight premium to other emerging market (EM) peers.

However, new all-time highs may prove to be elusive in the short term period due to lingering concern over the anemic economic situation and may materialize over the medium to long term.

With the mounting need to kick-start the stalled investment cycle, the infrastructure sector could do well with some positive measures in the Budget.