Continued exuberance around the Union budget and positive global cues lifted stocks further on Wednesday, with the benchmark Sensex index closing above the 50,000 mark for the first time, gaining more than 8% in just three days.
Despite high stock valuations, investors expect the Union budget proposals to kick-start investments critical to reviving growth.
The 30-share index jumped 458.03 points, or 0.92%, to close at 50,255.75, while the broader Nifty index gained 0.97% to 14,789.95.
“The budget is fuelling a rally in all economy-driven sectors, along with banking. The uptick in global markets, resumption of foreign inflows and strong earnings trend coming from December quarter results are other factors that are taking markets higher,” said Jaideep Hansraj, managing director and chief executive officer, Kotak Securities.
Foreign institutional investors (FIIs) have bought shares worth $1.1 billion since the budget was presented, continuing a months-long buying spree. Domestic institutional investors (DIIs), including mutual funds and insurance companies, were still net sellers in Indian shares worth ₹2,525.40 crore in the past three sessions.
Morgan Stanley, which has a bullish outlook on emerging markets, said that it is currently most bullish on India, with a favourable budget further boosting the outlook. “This balance sheet expansion (by G4 central banks) appears to have played a key role in the major valuation re-rating for all equity indices recently which has taken MSCI EM forward price to earnings (PE) to 15.6 times. From here on out, the growth rate in G4 central bank balance sheets is likely to moderate significantly, trending down to single-digit growth in early 2022,” it said in a note on 2 February.
The G4 central banks are Bank of England, Bank of Japan, the US Federal Reserve, and the European Central Bank.
Despite growing concerns on the inflationary risks due to the budget provisions, analysts said near-term triggers such as the Reserve Bank of India monetary policy review this week and earnings may drive markets higher.
“The underlying strength of domestic markets remains intact,” Binod Modi, head of strategy at Reliance Securities said. According to Modi, higher capital expenditure, reforms to boost investment and momentum in corporate earnings are expected to sustain in the coming quarters. “Further, higher fiscal stimulus in the US, persistent soft monetary policy stance of global bankers and the weak dollar should continue to act as key tailwinds for FPI flows,” he said.