WHO LET THE BULLS OUT?
Ever since finance minister Arun Jaitley presented the budget in Parliament on Monday, Dalal Street is seeing an unabated bull run. The Sensex has gained 1,605 points since Tuesday. Here’s why
FOREIGN INFLOWS: Foreign institutional investors (FIIs) have been backing the postbudget rally with all their might, thanks to the government’s resolve to keep the fiscal deficit within the targeted 3.5% of GDP in 2016-17. Also, with the budget having been presented, funds have started pouring in. On Tuesday, a day after the budget, FIIs bought 3,000 crore worth of Indian equities. On Wednesday, they lapped up 1,438 crore in shares. Over the two days, FIIs have bought 9,124 crore of Nifty options, the highest since January 2015
VALUE-BUYING: Most Indian stocks had fallen up to 21% in the three months till the budget, with some large mid-caps declining 60-70%. Since fundamentally nothing has changed to support such a steep fall, investors are finding value in buying stocks which had become cheap. L&T, which lost 16% since Jan 2016 till 26.2.1016, ended up 6% on Thursday. Similarly, Bharat Forge, which lost 17% since Jan 1, rose 4.6% on Thursday
THE LIC FACTOR: Life Insurance Corp (LIC), which has till now aided banks’ capital requirements, will get a breather to invest more in securities, with the RBI relaxing capital norms for banks. The RBI’s relaxation will free up 30,000 to 40,000 crore in equity capital for banks. This will leave LIC with more funds to invest in stocks.
RATE CUT POSSIBILITY: With the government sticking to the fiscal deficit target of 3.5% of GDP, it is now up to the RBI to cut rates. RBI governor Raghuram Rajan had earlier said that any future rate cut would depend on the government’s fiscal consolidation roadmap. Market players expect the rate cut to happen before the scheduled monetary policy in April.