Sensex, Nifty post highest weekly gain since April as Budget fuels optimism

There was no stopping the markets this week, as they rose on all five days and posted their biggest weekly advance since April. The Sensex closed on Friday at 50,731.63, with a gain of 4,446 points, or 9.6 per cent, over the week.

The Nifty gained 1,289 points, or 9.5 per cent, during the week and ended at 14,924. In intra-day trade, the blue chip index of 50 companies surpassed the coveted 15,000-mark.

The last time indices gained more than this was in the week ended April 12, when the Sensex rose 3,569 points, or 12.9 per cent to end that week at 31,159 and the Nifty ended with a gain of 1,028 points or 12.7 per cent to end at 9,112.

So, what spurred the bulls this week? For starters, the markets had declined by 8 per cent in the six trading sessions before the Union Budget for 2021-22, over fears of increases in taxes and weakness in global markets because of the delay in the passage of the US stimulus plan. The growth-oriented Budget and status quo maintained on taxes sparked relentless buying, with foreign portfolio investors (FPIs) reversing their selling stance.

The government’s decisions to loosen its purse strings and push asset monetisation to bridge the revenue shortfall were a big relief for investors. A rebound in global indices provided further support.

Banking and financial stocks led the rally, enthused by the proposals to address the bad loan problem and privatise two public sector banks.

“The recent rally in the domestic market indicates that pro-growth Union Budget has emboldened investors. A higher allocation towards capital expenditures and various measures or reforms to offer much-needed impetus to investment and consumption activities augur well for the economy and market,” said Binod Modi, head Strategy, Reliance Securities. However, this week’s rally has pushed market valuations beyond historical averages. The Sensex trades at over 23x its estimated earnings for FY23. Historically, the index has traded at 16x its 2-year forward earnings.

Experts say valuations have taken a back seat and indices will continue to move in tandem with global equities. Analysts said EMs, including India, will benefit from monetary easing in the West and a weak dollar. 

In addition, the sharp increase in capital expenditure and impetus to investment activities is likely to boost earnings for companies operating in this space.

“As the major events are behind us, the focus will shift back to fundamentals as well as global cues. We might see some consolidation in the index early next week, so there’ll be no shortage of stock-specific trading opportunities,” said Ajit Mishra, vice-president —research, Religare Broking.

On Friday, FPIs bought shares worth Rs 1,462 crore, taking their weekly tally close to Rs 15,000 crore.