Best prebudget rally in 13 yrs

STOCK MARKET Spurred by optimism around govt’s plans, Sensex, Nifty make record gains in month before Budget

Last full Budget before general elections in 2019 Eight states due to go to polls this year and four states in first half of 2019 announcement of a universal basic income transfer scheme or the imposition of a long-term capital gains tax on equities would be negative surprises,” Nomura added.

That said, the stock rally will be sustained only if the promised reforms and growth recovery lead to a pick-up in corporate earnings growth.

Analysts are expecting the first signs of a rebound in corporate earnings growth in the December quarter owing to the favourable effect of a low base a year ago and higher consumer spending in the festive season.

There have been no earnings upgrades despite high optimism for a revival of earnings growth, and Indian stock valuations are steep.

The Sensex is trading at 19.11 times expected earnings for the next 12 months. For fiscal 2018, the earnings estimate for Sensex firms has been cut by 10.15% since April. For fiscal 2019, it is down 4.24%.

For the bull run and high valuations to be sustainable, an earnings recovery is important, said Amar Ambani, partner and head of research, IIFL Investment Managers, adding that a full recovery could take 12-15 mths.

“Also, it is low cost of capital and improving industrial activity across the globe which is driving foreign money to India. Within corporates, there are many domestic-oriented sectors that have started showing growth,” he added.