The benchmark indices notched record closing highs on Tuesday as the buying frenzy triggered by the Budget continued for the second day. The Sensex even pierced the historic 50,000 mark in intra-day trade for the second time after January 21. The index rallied as much as 1,554 points before giving up some gains.
The Sensex closed at 49,798, up 1,197 points, or 2.5 per cent — extending its two-day gain to 3,512 points, or 7.6 per cent. The Nifty50 index rose 367 points, or 2.6 per cent, to settle at 14,648, surpassing its previous record made on January 20.
With these gains, the combined market capitalisation of all the listed companies on the exchanges jumped by Rs 4.14 trillion to Rs 196.60 trillion on Tuesday, taking the two-day increase to a whopping Rs 10.48 trillion.
In the six trading sessions preceding the Budget, the benchmark indices had come off more than 7 per cent. In the last two sessions, they have managed to recoup all the losses.
Investors have cheered Finance Minister Nirmala Sitharaman’s effort to revive economic growth by asset monetisation, privatization, and capex spends while maintaining the status quo on taxes.
“The Budget is expansionary and exhibits a counter-cyclical fiscal policy with focus on reviving growth while ensuring adequate resources for tackling the pandemic by expanding the fiscal deficit,” said Imtaiyazur Rahman, chief executive officer, UTI Mutual Fund. “There is a clear focus on improving the quality of spend by augmenting both the FY21 and FY22 capital expenditure. The government has shown commitment towards disinvestment and asset monetisation,” Rahman added.
Many brokerages, too, have lauded the government’s focus on growth, revising upwards their year-end targets. Morgan Stanley, for instance, has revised its December 2021 target for the Sensex from 50,000 to 55,000, saying the lack of new taxes, a push for growth through infrastructure spending, and a refreshed approach towards the monetisation of government assets have buoyed investor sentiment.
The latest rally has once again pushed market valuations beyond historical averages. The Nifty currently trades at 21 times its estimated earnings for FY23 — much higher than its historical average of 16 times.
Experts said there was little legroom for the market in terms of valuation to rally sharply from the current levels. They said the domestic market could now move in tandem with global equities.
On Tuesday, most global markets were up sharply on renewed hopes for a new round of US stimulus and progress on Covid-19 vaccination.
Financial and cyclical stocks were among the major gainers on Tuesday.
SBI was the best-performing stock and ended the session with a gain of 7 per cent. Ultratech rose 6.7 per cent, and HDFC Bank rose 5.6 per cent. All the BSE sectoral indices ended the session with gains.
“The Budget has provided clarity on the financial services sector. It seems there will be a market-clearing of bad debts. By cleaning up balance sheets and with investments in infrastructure, there is scope for growth revival,” said U R Bhat, director, Dalton Capital India.
As many as 249 stocks hit their 52-week highs, and 334 were locked in the upper circuit on the BSE. The market breadth was positive with total advancing stocks at 1,755 and those declining at 1,184.