Expectations from the budget can be on two counts:
(a) There may be policy actions and steps that will benefit market participants, and,
(b) A theme for growth may benefit the economy and therefore benefit the market in the long run.
Direct benefits includes (a) 'tweaking' the STT (this is the term CNBC is using) which ,means reducing the rate , (b) Giving direct tax benefits to infra or similar companies. (c) Allowing majority control in Insurance (d) Allowing FDI in retail (e) Channelling public provident fund savings in the stock market, and, (f) announcing sales of PSU shares.
I do not feel that the market is going to get (a). Why should the govt reduce STT ? Money from STT is used to provide employment to millions of rural poor. This step will benefit only a few brokers who have large proprietory trading operations. (b) is possible. (c), (d) and (e) are extremely unlikely. That leaves sales of PSU shares which are likely to take place.
Long term gains for the market will flow from improved health of the economy. The market does not get excited about such steps, because they do not carry glamour. With many financial constraints, the Govt is unlikely to reduce tax rates for companies. More likely, some kind of long term capital gains tax may come in.
These are my assumptions, on which a budget scenario can be built.
For investors, buying is possible in Infra, Large PSU and Private Banks. Long term investors can buy for short term capital gains. I still plan to keep the 4200 levels as a stop loss. (Note how the market found support, then bounced back from 4200).
For traders, wishing to take posiyions in F&O, it is too early to devise a strategy. Pehaps we should review the budget theme again on July 3 or 4.