Bulls take charge at Dalal Street: Sensex up over 2,300 pts on Budget day

Finance Minister Nirmala Sitharaman’s announcements to revive economic growth without increasing taxes were lauded by the Street.

The benchmark Sensex jumped 5 per cent, while the Bank Nifty zoomed 8.3 per cent. This was the best Budget-day performance for the markets since 1999, and the biggest single-day advance in nearly 10 months.

A rebound in global indices further lifted sentiment, which had earlier taken a beating resulting in the benchmark indices coming off more than 7 per cent from their record highs on January 20.

Foreign portfolio investors (FPIs) also cheered the Budget, ending their one-week selling spree. On Monday, they bought shares worth nearly Rs 1,500 crore.

Shrugging off a widening fiscal deficit and surge in bond yields, the Sensex closed at 48,600.6 — a gain of 2,314 points or 5 per cent. The broader Nifty50 rose 647 points, or 4.74 per cent, to close at 14,281, logging its biggest Budget-day gain since 1997.

Experts said Sitharaman’s move to go for asset monetisation instead of an increase in taxation helped soothe investors’ nerves.

Many had feared she could aggressively increase taxes to help offset the negative hit to revenues caused by the pandemic.

“The Budget avoids the pitfalls of raising taxes and, at the same time, provides a boost to capex spends. The feared and anticipated measures surrounding a Covid cess, higher capital gains tax, or a wealth tax did not materialise,” said Motilal Oswal, MD and CEO of Motilal Oswal Financial Services.

Financial stocks jumped close to 10 per cent, with IndusInd Bank gaining 15 per cent, ICICI Bank jumping 12.5 per cent, and Bajaj Finserv and SBI gaining over 10 per cent each. 

The performance of this sector has a huge bearing on the overall market movement.

Experts attributed the gain in banking stocks to the proposal to address the bad loan problem and privatisation of public sector banks.

The FM proposed to incorporate a new entity to take over the existing stressed debts, which will manage and dispose of such assets to alternative investment funds (AIFs) and other potential investors for eventual value realisation.

Indian banks are grappling with a bad loans crisis, and the onslaught of Covid-19 dented borrowers’ repayment ability. Privatisation of two state-run banks (besides IDBI Bank) and a general insurance firm has been proposed.

“The markets got what they wanted — fiscal spending with no tax. Global indices, too, continue to be helpful. We had very low expectations regarding the Budget. Quite a bit of today’s gain was short covering. Everyone in the world wants fiscal spending,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.

Most global markets gained over a per cent on Monday, as concerns around frenzied buying by Reddit investors ebbed.

Shares of cigarette manufacturers rose after the government kept taxes on tobacco products unchanged. Investors were concerned over a hike in taxes on tobacco products to meet the shortfall in revenue. The ITC stock rose 6.3 per cent.

Shares of capex-oriented firms gained after the FM proposed a Development Finance Institution (DFI) to facilitate infrastructure financing. Larsen & Toubro rose 8.6 per cent, NCC jumped 13.7 per cent, and GMR Infrastructure gained 4.2 per cent.

The FM also proposed a sharp increase in capital expenditure to Rs 5.54 trillion, 34.5 per cent more than the previous Budget estimate.  

“A low trade deficit and ample globally liquidity has supported bond yields. If this changes, the current fiscal expansion may mean a serious challenge in navigation in the future,” said Prabhat Awasthi, MD and country head (India), Nomura.

Experts said the markets would take a couple of days more to fully digest the Budget, and then focus will shift back to global cues and earnings.