The benchmark Sensex ended below the psychological 29,000 mark on Monday, dragged by a sell-off in blue-chip stocks in the oil and financial space, as investors turned cautious ahead of the Union Budget. The fall was triggered by rating agency Standard & Poor's (S&P) comments that India fares poorly on debt and fiscal parameters compared to its peers and it will have to wait for another three years for a credit rating upgrade.
The Sensex, which was trading positively as the Budget session kicked off in Parliament, came off more than 300 points after the S&P news release.
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Dropping for a second straight day, the benchmark Sensex closed at 28,975.11, down 256.3 points, or 0.88 per cent. The 50-share Nifty ended 78.65 points, or 0.89 per cent, lower at 8,754.95.
“Improvements in India's weak fiscal balance sheet are likely to be gradual and are thus unlikely to lead to a rating upgrade in the next three to five years,” S&P said, adding that the government needs to take steps to boost growth, cut fiscal deficit and meet promises of reforms to justify an upgrade.
In September 2014, the rating agency had raised India’s credit rating outlook to ‘stable’ from ‘negative’ on the Narendra Modi government’s promises of reforms. Market players are expecting the government to unleash its reform and growth agenda in its first full Budget to be presented on Saturday.
“Expectations are high that the forthcoming Budget would be ambitious and reform-oriented, and be a development road map for the coming years,” said Deutsche Bank in a report.
Before losing ground in the last two sessions, the Sensex had gained around 4.4 per cent, or 1,235 points, from 28,227 on February 9 to 29,462 on February 19.
G Chokkalingam, managing director, Equinomics Research, said some investors were booking profits ahead of the Budget, following the sharp run-up.
“Some section of the market is worried that the government will go for populist measures after the BJP's defeat in the Delhi elections. The market will remain volatile, with a downward bias ahead of the Budget,” he said.
Among Sensex components, Reliance Industries fell the most at 2.53 per cent, followed by GAIL and Axis Bank, which fell around two per cent each. SBI, Hindustan Unilever and HDFC also fell more than 1.5 per cent each. According to provisional data, foreign institutional investors bought shares worth around Rs 600 crore, while domestic investors were net-sellers to the tune of Rs 164 crore on Monday.