A day after stock markets settled lower before erasing most of its early losses on the Budget day on Monday, key benchmark indices, Sensex & Nifty, today witnessed frenetic buying activity since early trades today. With the mood staying upbeat in early noon trades, the Sensex has surged over 600 points amid strong buoyancy across banking, IT and FMCG stocks.
Market men hailed the government's decision to maintain the fiscal deficit target of 3.5 percent for the next financial year, fuelling hopes of a sooner-than-later rate cut by the Reserve Bank of India. With government allocating more funds towards rural development and increasing spends on MGNREGA, investors hoped growth may get traction in the medium-term, and hence resorted to short-covering, thereby triggering a broad-based rally.
"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 Gautam Chhaochharia, head of research at UBS India.
"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-2015 Nifty target is 7,500," said Chhaochharia in his note.
Besides this, recovery in other Asian markets also helped the sentiment stay positive since early trades.
At 12.55 pm, the 30-share BSE S&P Sensex was at 23610.53, up 608.53 points, or 2.7 percent, while CNX Nifty was at 7,170.35, up 183.30 points, or 2.6 percent from previous close.
Elsewhere in Asia, Japan's Nikkei was up 0.3 percent, China's Hang Seng and Shanghai Composite were up over 0.5 percent each after the recent weakness.
A day after ITC stock faltered sharply on worries of volumes would be hit on budget proposal to hike excise duty on cigarettes, the stock rebounded sharply to trade 8.1 percent higher at Rs 319.80. Buoyancy in the stock was on the back of lowest excise duty hike in five years.
Banking stocks also notched up significant gains on rate-cut hopes. Shares of ICICI Bank shot up 5.6 percent to Rs 200.70, Axis Bank rose 3.2 percent to Rs 387.20 and SBI was up 1.6 percent at Rs 161 in the Sensex space.
Among the PSU banks, PNB rose 2.6 percent to Rs 73.15 and Bank of Baroda moved up 2.2 percent to Rs 134.90.
IT stocks attracted significant buying support aided by sharp appreciation in rupee, which rose by 24 paise to 68.18 against the dollar.
Among the gainers, Wipro rose 3.1 percent to Rs 536, TCS gained 3 percent to Rs 2,249, Infosys added 3.1 percent to Rs 1,117 and HCL Tech was up 2.8 percent at Rs 835.25.