Markets log best weekly gain in seven years on FII buying

Rate sensitive sectors rallied the most led by banks while metals surged on rebound in commodity prices

Benchmark share indices logged their best weekly gains in seven years in absolute terms and best in four years in percentage terms, as foreign investors turned aggressive buyers after the Budget maintained the path to fiscal prudence.

For the week ended March 4, the S&P BSE Sensex ended up 6.4 per cent at 24,646 and the National Stock Exchange's Nifty ended up 6.5 per cent at 7,485. In the broader markets, the BSE Midcap index ended 6.8 per cent higher, while the Smallcap index ended up 7.7 per cent.

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“The Budget inspired the markets to bottom out and saw frontline indices rally over six per cent. Action was broad-based and driven by fresh buying interest from foreign institutional investors (FIIs). The US jobs data and Gyan Sangam will be key drivers for the markets next week. However, a breather would be welcome, as investors are yet to come to terms with the sudden reversal. Past rallies have seen investors being bewildered and wondering about the extent of the upmove. This lack of faith usually sees market move higher before a broader participation.

The March 15, 2016, advance tax payments will present the next reality check for earnings. The next big trigger is Reserve Bank of India (RBI)'s likely rate cut, which is due in April," said Ravi Shenoy, AVP-Midcaps Research, Motilal Oswal Securities.

The finance minister in his Budget maintained the fiscal deficit target at 3.5 per cent of the gross domestic product for the next financial year.

The major highlights of the Budget include allocation of Rs 25,000 crore towards their recapitalisation of state-owned banks in the next financial year and infrastructure outlay at Rs 2.21 lakh crore for 2016-17, with road and rail taking up most of the allocation at Rs 2.18 lakh crore. To boost farmers' income, the Budget proposed an allocation of nearly Rs 36,000 crore for the agriculture sector and raised agri-credit target to Rs 9 lakh crore for the next financial year.

FIIs, sellers in the first two months of the current calendar year, turned buyers with net equity purchases of worth Rs 2,764 crore from February 29 to March 4, according to the provisional stock exchange data.

The rally in the markets was driven by rate-sensitive sectors, with banks gaining the most, along with capital goods and metal stocks.

The shares of public sector bank (PSB) surged after the government pledged support to keep state-owned banks in good health and the RBI eased rules on their core capital requirements under the upcoming Basel-III norms. Further, hopes of a rate cut also boosted sentiment. Among the PSBs, State Bank of India zoomed 20.6 per cent, Punjab National Bank jumped 14.5 per cent, while Bank of Baroda ended 12 per cent higher. In the private banking space, HDFC Bank rose 6.4 per cent, ICICI Bank surged 19.3 per cent, IndusInd Bank rose 12 per cent and Kotak Mahindra Bank ended up 8.4 per cent.

Metal shares flared up after rebound in global commodity prices in addition to the government's proposal for increase in customs duty on aluminium to 7.5 per cent from five per cent and scrapping of export duty on low grade (below 58 per cent iron content) iron ore lumps and fines boosted sentiment. Vedanta was the top gainer up 21.5 per cent followed by Jindal Steel, Tata Steel, SAIL, Hindalco and National Aluminium up 12.6 per cent-18.1 per cent, each.

In the capital goods space, BHEL ended up 12.8 per cent after the state-owned engineering major said it has won an order worth Rs 5,600 crore from Tamil Nadu government for setting up of the Main Plant Package for the 2X800 Mw Uppur Supercritical Thermal Power Project. Further, the company has also commissioned supercritical thermal units at Karnataka and Tamilnadu.

In the two-wheelers segment, Hero MotoCorp surged nearly 11 per cent after the company reported a 13.6 per cent rise in sales at 550,992 units in February 2016, compared to 484,769 units in February last year. Bajaj Auto ended up three per cent after reporting a nine per cent increase in motorcycle sales at 235,282 units in February, compared to 2,16,077 units sold a year ago.

Outlook

Investments by FIIs will be the key driver of the market in the truncated week ahead.

Markets will remain closed on Monday on account of Mahashivratri. Further, markets will also react to the US payrolls data. The US Labor Department on Friday said non-farm payrolls increased by 242,000 jobs in February.

The government will announce Index of Industrial Production data for January on Friday.