Though not much is expected from this year's Budget, the market is still hoping for the rally to continue. Vibhav Kapoor of IL&FS is expecting that the market rally will continue but key events lined up this week will determine upside from current levels.

In an interview to CNBC-TV18, he said, "I am positive that the Budget will be good for the market. Of course getting to a lower fiscal deficit number which I think is going to be the key issue in the Budget will come probably through an increase in taxes, probably through indirect taxes raising the excise duty maybe from 10% to 12% or having increasing the service tax rate either through a rate increase or through a negative list of service tax. I think it would be positive for the market and the markets should go up after the Budget."
However, Kapoor sounds pessimistic on reforms this year. According to him,  the political situation may hamper the FM to introduce any reform this Budget.
Here is an edited transcript of his comments. Also watch the accompanying videos.
Q: How likely is a pre-Budget rally this time around?
A: On Friday we rallied and probably today after the CRR cut the rally should continue. A lot will of course depend upon data coming in today on IIP and more so on Wednesday on the inflation numbers. Then  on Thursday we have the credit policy. So there are a lot of events leading up to the budget which could also decide whether you have a further rally from here or not.
 
Q: Post Budget do you see 5600 plus or sub 5200 again?
A: I am positive that the Budget will be good for the market. The Finance Minister will lay emphasis on fiscal prudence which is what I think a lot of investors and the market want. Of course getting to a lower fiscal deficit number is going to be the key issue in the Budget.
This will come probably through an increase in taxes, indirect taxes, raising the excise duty maybe from 10% to 12% or increasing the service tax rate either through a rate increase or through a negative list of service tax.
So while those who would be a little negative if they were to happen, in the short term if the Finance Minister is able to achieve a fiscal deficit target of less than 5%, it would be positive for the market and the markets should go up after the budget.

Q: How have you read the money market reaction where yields have neither moved too much plus there is nervousness about the borrowing figure come Budget day?
A: There is a huge amount of tightness in the money markets over the last few months. The Reserve Bank's action on Friday in cutting the CRR is not a surprise to that extent. It is obvious because of the advance tax coming in, the tightness would have increased. So you have an easing of the liquidity situation which should probably bring down short term rates. But as far as the long rates are concerned, I think it will depend more on the budget rather than on the CRR cut or if the RBI decides to have an interest rate cut on Thursday.
But I think the bond market seems to be saying that you are unlikely to get an interest rate cut at this point of time. Probably the RBI will wait till after the budget for the fiscal deficit and then the rest of the things pan out. You must also remember that oil prices have been going up continuously and with oil at USD 125-126 - that is something which is not so good for bond yields to come down.
 
Q: What do you expect post the Budget? Do you think liquidity globally will keep the markets in good shape and pretty much buoyant? Or do you suspect that there could be a deeper correction post the budget which takes the Nifty below that 5,200 where we found support 10 days back?
A: Global situation has improved significantly both in Europe as well as the US and definitely liquidity is abundant with this latest 500 billion Euro loans from the ECB. There is an expectation that since China is also slowing down there is easing there also.
So overall it's a pretty good liquidity situation which should keep the markets relatively buoyant. However having said that obviously as far as the Indian markets are concerned a lot will depend on the budget this time and as I said earlier the figure to really think to look out there is the fiscal deficit number.