Markets hit new highs as focus shifts to Budget

The Indian markets on Tuesday recorded new all-time highs, led by gains in automobile and consumer discretionary stocks, on optimism that the Narendra Modi-led government will take steps to boost rural income after his party won by a narrow lead in the Gujarat state elections. The BSE Sensex gained 235 points, or 0.7 per cent, to close at 33,836.74, surpassing its previous closing high on November 6.

The Indian markets on Tuesday recorded new alltime highs, led by gains in automobile and consumer discretionary stocks, on optimism that the Narendra Modi-led government will take steps to boost rural income after his party won by a narrow lead in the Gujarat state elections.

The BSE Sensex gained 235 points, or 0.7 per cent, to close at 33,836.74, surpassing its previous closing high on November 6. The Nifty, too, gained 74.45 points, or 0.72 per cent to close at 10,463.

The BSE Midcap and Smallcap indices, too, saw similar gains and settled at new highs. All but two of the 19 sectoral sub-indexes compiled by the BSE gained.

Automakers Maruti Suzuki India, Hero MotoCorp and Tata Motors were the best performers on the Sensex. Experts said the Modi government might soon take steps to boost rural income. "The diminished vote share in Gujarat is a wakeup call and may push the government to focus on creating jobs in rural areas," said Chakri Lokapriya, chief investment officer at TCG Asset Management, which has $3 billion in assets. "The federal Budget may cut taxes to spur growth, especially for the small business and consumer segment which will be the big beneficiary if that happens."

The government will take note of the drop in vote shares in rural areas and among the youth in Gujarat, as it bears the brunt of voter displeasure against Modi's demonetisation and tax reforms, Neelkanth Mishra and Deepali Bhargava, analysts with Credit Suisse Group AG, wrote in a note published Monday. "We expect policy action, with the Budget speech focusing on farm distress, and a ramp-up of direct benefit transfer on fertilisers, crop insurance, and innovative price guarantee schemes for farmers."

The benchmark indices have rallied more than 28 per cent this year, making it one of the best-performing global markets. The gains, however, have come on the back of expansion in valuations with the Sensex now trading at 18 times its one-year forward earnings estimate. The longterm trading multiple for the index is around 16 times.