Prasanna Deshpande and Kishor Kadam
Till this Monday, stock market traders on the Dalal Street seemed less enthusiastic about the outcome of Budget 2016-17, but the tide has changed for the good since then. Bulls have bounced back sharply from the sombre mood, with the benchmark Sensex soaring more than 1,600 points or nearly 7 percent in three straight sessions beginning Tuesday.
In order to give a perspective of how the stock markets fared in the last two decades during the budget period, the closing level of Sensex on a day prior to the budget and the level on the third trading session post the budget were taken into consideration.
The data shows that the 6.3 percent rise (or 1,453 points) in Sensex registered during the period was the biggest in last 17 years since 1999-2000 budget. During the period, investors’ wealth zoomed by a whopping Rs 4.75 lakh crore with total market-cap reaching to Rs 91.09 lakh crore on BSE.
In the past 17 years since 2000-2001, 20 Budgets were presented out of which three were interim budget encompassing 2004-05, 2009-10 and 2014-15.
In 1999-2000, Sensex had risen by a whopping 11.4 percent when the index level was at 3601.96 (see for the table below). However, the stock market performance had been indifferent since then, as the Sensex posted mainly negative returns during the period under review.
So, what led to the change in investors' perception in last four sessions this year that changed the course of markets despite little change in global and domestic economic scenario. In fact, the Sensex has already declined 12 percent or 3,159 points in last two months.
Market experts say the government's focus on rural development and huge outlay for agriculture proposed in the budget is expected to drive consumption-related growth, which otherwise had lost some sheen in last few years due to poor monsoon and subdued government spending.
Further, the government keeping its commitment to bring down the fiscal deficit to 3.5 percent in next financial year (2016-17) received thumbs up from the investors, as there were murmurs earlier that the government could increase the deficit target to aid growth.
The proposal to meet the deficit target certainly raised hopes of a rate-cut from the RBI in near-term, fuelling a massive rally in markets.
According to G.Chokkalingam, Founder & Managing Director, Equinomics Research & Advisor, budget did not carry any negative news for markets, and especially for the FIIs. Volatility will be the order of the day going ahead. Now with use of technology becoming more prominent, traders and investors are able to take decisions quickly to any global and domestic news, which in turn creates huge sideways movement in the markets.
"Also, we had already seen large to small-cap stocks falling around 20-60 percent since the new year on strong foreign fund outflows and weakening global economic scenario. With budget giving some hope of rate cut going ahead and strong rural spending likely to boost consumption growth, stock markets witnessed a turnaround," said Chokkalingam.
Banking stocks were the clear winners in the recent upsurge. During the period under review, ICICI Bank zoomed nearly 18 percent, State Bank of India shot up 17 percent, Axis Bank rose 8 percent, HDFC gained 6.5 percent and HDFC Bank moved up 5.6 percent.
Among other strong performers in the Sensex pack, Tata Steel spurted 15 percent, Adani Ports flared up 13.4 percent, Gail India scaled up 12.7 percent and Tata Motors was up 11.3 percent.
On the sectoral front BSE Bankex was the biggest gainer, surging 10.3%. Along with hopes of a rate cut, RBI's latest move to tweak capital norms and provide additional capital to meet Basel III norms for banks triggered massive rally in banking stocks.
Other sectoral gainers such as BSE Realty index rose 10.2 percent, Metals moved up 7.9 percent and BSE Capital goods gained 7.2 percent. Even the BSE Mid-cap and Small-cap indices, which were languishing in red for some time, rebounded sharply to gain 5.6 percent and 6.8 percent, respectively.
Also, surprisingly in last five sessions, domestic currency movement, too, picked up momentum, reversing the decelerating trend, amid recovery in crude prices, with rupee surging by Rs 1.36 or nearly 2 percent to trade at 67.36 level against the dollar.
The sharp appreciation in rupee against the greenback sparked the revival in foreign fund flows into local shares. Foreign institutional investors, which deserted the local equities in last two months, suddenly turned net buyers and infused funds to the tune of Rs 5,637 crore in past three sessions.
While FIIs exited from emerging markets, including India since the beginning of new year, these overseas investors sold over Rs 19,000 crore worth of shares, leading to pessimism in the overall markets.
Despite the sharp turnaround in equity markets, the mood could soon shift to one of a caution as the bleak global economic prospects and lingering delay in kicking-off the reforms process can very well derail the upward bias and hurt the overall sentiment.
Now with the budget hangover behind, focus will once again shift to corporate earnings, which have been disappointing over past 12 months or so, and the prospects of monsoon. In particular, investors will be more keen to know if the government will be able to pass the stuck GST and other important bills in the budget session to rev up the growth.
Also, Chokkalingam of Equinomics Research, too, has cautioned that with global economy in deflationary phase and lack of pick up in domestic corporate earnings front, rally may fail to hold on for long and global cues would once again dictate the domestic market trend.