A booster shot for bulls in best budget day rise
This is not a populist budget. It prioritised growth over fiscal prudence... Markets have loved it PRABHAT AWASTHI, Nomura India head
MUMBAI: Indian stocks rallied 5% on Monday propelled by the government’s plan to ride the economy out of the pandemicinduced turbulence through a slew of growth-focused initiatives as well as the absence of any negative step such as higher taxation.
After a week of nervousness, when the markets consecutively closed in the negative territory, the BSE Sensex lifted 5%, while the benchmark Nifty gained 4.74% as investors cheered announcements made by finance minister Nirmala Sitharaman in the FY22 budget to spur growth through higher public expenditure, asset monetisation and strategic divestments.
The Nifty Bank rose 7%, its highest single-day jump ever, after the finance minister announced measures to clean up bad loans in the sector, which include creating a bad bank to warehouse the bad loans of banks, recapitalisation of ailing public-sector banks and privatisation of at least two such banks. The Nifty Auto index rose more than 4% after the government announced the long-awaited voluntary vehicle scrappage policy.
Markets experts said investors were particularly enthused by the absence of any significant negative surprises in the form of higher levies or taxes and the government had done well in setting aside fiscal consolidation concerns for the time being to boost nascent growth.
“Growth oriented budgets will support equity markets. Asset monetisation, strategic divestment, auto scrappage policy are positive for the market. Fixed income market will look forward
to RBI’S monetary policy as the gross borrowing programme was little on the higher side. The budget has laid the foundation for growth beyond FY22 through selective protection to domestic industry and encouragement via the PLI scheme,” said Nilesh Shah, group president and MD, Kotak Mahindra Asset Management Company said.
Monday’s rally swelled investor wealth by ₹6.34 trillion , its biggest single-day gain since April 2007. Overall, the market capitalisation of Bse-listed companies jumped by ₹6.34 trillion to ₹192.47 trillion.
“This is a budget that strikes the right cords. It marks a shift in its basic stance -- expansionary now, focuses on the plumbing of the operating environment through clearing regulatory cobwebs, and sets a path for a longer term policy stance,” said Aditya Narain, Head, Research, Institutional Equities, Edelweiss Securities.
“The markets will like it, it’s what a lot of economic doctors have been ordering, and while there will be risks in inflation and the currency, this is the time to take those risks. We do believe market players will be ready to take risk on the back of the approach and the risks the budget is taking.” he added
“This is not a populist budget, there is no major attempt to redistribute incomes by increasing taxes on high income groups, as was the case earlier. It has attempted to further reform tax administration and reforms in some other areas. It prioritised growth over fiscal prudence. There is a bold statement on monetisation policy on the government remaining in only four sectors. All in all focussed on reforms and growth. Equity markets have loved it and bonds have sold off,” Prabhat Awasthi, Managing Director and Country Head, India, Nomura.
He said a key caveat to remember is that the fiscal expansion would mean that rates would become more vulnerable to changes in balance of payments.
According to analysts, market focus has now shifted to corporate earnings in Q3 FY21. Even though market valuations are elevated, the recovery in corporate earnings and the easy liquidity scenario globally may help to support valuations for some time, they said.