Sensex rallies on Budget optimism
REBOUND Indian stocks’ best weekly gain in eight months
Indian stocks logged their best weekly gain in eight months as better-than-expected company earnings and hopes that the budget next week would provide a dose of economic stimulus lifted investor sentiment.
Local stocks also rode a global equity rally which saw the Dow Jones Industrial Average cross the landmark of 20,000 points earlier this week.
BSE’s 30-share Sensex closed 0.63%, or 174.32 points, higher at 27,882.46 points while the National Stock Exchange’s 50-share Nifty rose 0.45%, or 38.50 points, to 8,641.25 points. It was their highest closing level since end October.
The 3% rise in the trading week ended Friday also means that Indian stocks are set to buck the trend of underperforming their emerging market peers in the 30 trading sessions that run up to the Budget.
In the last decade, the MSCI India Index has lagged behind the MSCI Emerging Markets (EM) gauge seven times when the 30 trading sessions ahead of the Budget are considered. This year, in 28 sessions leading to the Budget on February 1, MSCI India is up 9.13%, ahead of MSCI EM’s 8.27%.
“There are rising expectations that government’s demonetisation scheme will lead to more positives. Results from companies are validating that demonetisation has not hurt much in the near term,” said Deven Choksey, group managing director at KR Choksey Investment Managers Pvt Ltd. “Budget is likely to provide larger thrust to the economy in the area of infra spending.”
To be sure, Indian markets had beenbatteredsince November8, when the government banned ₹1,000 and ₹500 banknotes and Republican candidate Donald Trump unexpectedly won the US Presidential election.
A strengthening US dollar on the back of Trump’s win hit investment inflows to emerging markets, triggering a flight to dollar assets.
After several weeks, foreign equity flows to emerging markets exceeded those to developed markets last week as risk appetite returned. Foreign institutional investors (FIIs) have been net buyers of Indian shares in six of the eight sessions in the second half of January, even as they are net sellers of Indian shares to the tune of $395.39 million in the year to date.
The current rally is, thus, a rebound to the levels last seen around November 8. But with stock gains accelerating in the last week, it is clear that there is a sense of optimism building in the run-up to the budget
“Markets are expecting the finance minister to increase public spends and grant benefits on direct taxes front even at the cost of fiscal rectitude,” said Dipen Shah, senior vice-president–private client group research, Kotak Securities Ltd.