Equity markets staged a strong bounceback on Tuesday, reversing the gloomy mood prevalent in last few sessions as bulls ran amok helping benchmark Sensex post its biggest single-day gains in nearly seven years. Buoyed by sharp appreciation in the domestic currency rupee against the dollar, foreign institutional investors turned net buyers of stocks, infusing funds worth Rs 2,913 crore into local equities. The change in mood assumes significance after having turned net sellers of domestic equities since the start of new year, pulling out funds worth Rs 19,459 crore in past two months.
As the government in its budget announcement stuck to its fiscal deficit target of 3.5 percent for the next financial year, stock market investors sensed policy rate cut could be on the cards in the near term, triggering a strong bout of short covering in banking, automobile and FMCG stocks.
With firm Asian markets trend also contributing to the upward bias, Sensex zoomed 819 points to come close to the 24,000-mark before hitting an intra-day high of 23,821.49. Finally, the 30-share BSE S&P Sensex closed the session at 23,779.35, up 777.35 points, or 3.4 percent from previous close. Today's close is the biggest single-day gain since 18 May, 2009.
The broader 50-stock CNX Nifty ended at 7,222.30, up 235.25 points, or 3.4 percent.
In fact, the unabated rally resulted in market-capitalisation accelerating by a whopping Rs 2.52 lakh crore to Rs 88.35 lakh crore on the BSE.
Aided by further cut in policy rate and robust fund allocation proposed for rural economy in the budget, the sharp upsurge in the Sensex today erased almost all of its losses (down 787 points) registered in last four out of five sessions.
"We expect RBI may cut interest rate as early as this week. This is why we witnessed such a robust rally today...but we don't see rally sustaining over the next few sessions, as the budget didn't spell anything beyond rural spending. This is why we feel things may not change on the corporate earnings front going ahead, and markets will once again take directions from global news," said A K Prabhakar, head of research (retail segment) at IDBI Capital.
As seen in the current year so far, the Sensex has already lost a whopping 12 percent or 3,159 points down on the back of stepped up foreign investor selling and sluggish domestic economic growth.
"We now expect 50bps of policy rate cuts in CY2016 (from 25bp) as the Budget should give the RBI sufficient space. With our view of no acceleration in real GDP growth (7.4% in FY17, vs 7.6% in FY16) and some acceleration in nominal GDP growth (11% in FY17, vs 8.6%% in FY16), we now forecast Nifty earnings growth of 10% in FY17 (on a base of 2% growth in FY16)," said foreign brokerage firm UBS in its report.
"We sense recalibration of market expectations on growth, finally, though consensus earnings cuts may yet be sharp (further 8% in 2016). Markets appear reasonably valued and we expect some re-rating from 14.2x 1y fwd PE to 15x – supported by 50bps of rate cuts in CY2016 which implies lower cost of capital. Our revised end-2016 Nifty target is 7,500; our downside scenario implies a Nifty value of 6,500. The Budget is unlikely to alter market trajectory though and global risk environment should drive markets near-term," the report said.
Among other Asian indices, Japan's Nikkei rose 0.4 percent, while China's Hang Seng jumped 1.6 percent and Shanghai Composite surged 1.7 percent, respectively. Major European indices also exhibited a firm trend, with Germany's DAX rising 1.5 percent and France's CAC gaining 0.5 percent in intra-day trades.
Back home, market breadth ended extremely robust, with 2,011 stocks advancing against 589 declines on BSE.
Among the gainers in the Sensex constituents, ITC led the pack, soaring nearly 10 percent to end at Rs 325.10 after the excise duty hike proposed in the budget was the lowest in last five years.
"At first sight, we look at the Union Budget as a successful one, given the current global scenario, the space to maneuver was rather limited. But despite that, we feel there is something in it for everybody. The Government has done well to have maintained the fiscal deficit at the targeted levels of 3.9% of GDP and has retained the target for FY17 at 3.5%. This is a major positive as it was broadly expected that the FM might have to stretch the fiscal a little to accommodate some expenditure to spur growth," said Arun Gopalan, Vice President, Research at Systematix Shares & Stocks.
In anticipation of a rate cut, banking majors ICICI Bank shot up nearly 8 percent to Rs 205.10, Axis Bank advanced 4.4 percent to Rs 391.90 and SBI gained 2.4 percent to Rs 162.20.
Other consumption-related stocks such as Maruti rose 7.8 percent to Rs 3,495.50, HeroMoto Corp moved up 6.1 percent to Rs 2,651.50 and Asian Paints gained 2.8 percent to Rs 872.25.
Along with stock markets, currency markets also witnessed hectic action, with rupee appreciating by 74 paise to fall below the 68-mark at 67.89 against the dollar. In fact, in two sessions, the rupee has appreciated by 74 paise or 1 percent.
Despite the rupee appreciation, strong buying was seen in IT stocks. Shares of TCS rose 4.3 percent to Rs 2,275, Infosys jumped 3.8 percent to Rs 1,124.50 and Wipro added 2.9 percent to Rs 535.