A farm package at a cost lower than market expectations and minor slippage in fiscal deficit target by 10 basis points, tax benefits for the middle class and salaried persons and for the real estate sector announced in the Interim Budget led to a rally in the equity market.
In a repeat of the Budget day sessions, the market turned volatile soon after the Budget speech by the finance minister as the budget announcements led to a flurry of buying in the consumption related stocks led by auto, consumer durable, FMCG, housing finance and agri input stocks.
The Sensex rallied to a high of 36,778.14 and the Nifty to 10,983.45 intra-day gaining more than a per cent but then fears of the fiscal math going wrong saw the benchmark index dropping to the red briefly to the day’s low of 36221.32 and the Nifty-50 to 10,813.45.
However, buying resumed later, leading to a positive close with a gain of 0.6 per cent for both Sensex and Nifty-50.
The Sensex added another 212.74 points on Friday’s closing at 36,469.43, topping Thursday’s pre Budget rally of 665 points while Nifty-50 closed at 10,893.65.
With economic benefits announced for a wider section of the population consumption related stocks got a big boost.
The two-day rally in the market led to big gains on BSE in consumption related blue chip names led by Hero MotoCorp(7.60 per cent), Maruti Suzuki(6.49 per cent), Asian Paints(4.86 per cent), HDFC(3.97 per cent), Hindustan Unilever( 3.79 per cent), Bajaj Auto(4.11 per cent), Reliance Industries(4.35 per cent), Tata Motors(4.27 per cent), Eicher Motors(3.92 per cent), HDFC Bank(2.89 per cent), ITC(2.18 per cent), Mahindra & Mahindra(1.45 per cent).
Shiv Gupta, CEO, Sanctum Wealth Management said, "The budget is clearly consumption friendly, with tax cuts and consumption support, and markets have lauded the programs with up moves the past couple of days. India remains a consumption-driven economy, much as the U.S. has been for the past 40 years, and this will remain the most important driver of economic growth for the foreseeable future."
Analysts from the foreign brokerage UBS commenting on the direct income support for farmers in interim Budget said, “This was not a surprise considering the street was expecting some support to farmers but the relief was that the cost of this package was lower than market expectations.”
Also the minor fiscal deficit slippage was not a negative for the market.
“The government missed the FY19 fiscal deficit target by 10 bps to 3.4 per cent of GDP, which was largely in line with market expectation,” UBS analysts said.
Foreign portfolio investors were not disappointed with interim budget announcements as they turned net buyers of Indian equities worth Rs 1315.89 crore just a day after massive Rs 2,891.04 crore buying that took place on Thursday.
Meanwhile the domestic institutions were cautious and watched the event from the sidelines as there was no buying seen from them on Friday and they provisional data showed DIIs as net sellers by Rs 5.07 crore.
However mutual funds may resume buying after the budget announcements are digested and dust settles down.
Navneet Munot, executive director & chief investment officer, SBI Mutual Fund said,
“The thrust towards income enhancement is positive for the consumption oriented sectors. From equity market perspective, budget would be seen as a positive event given the continued focus on income enhancing measures.”
Brokerages expect tax incentives announced in the budget to be ploughed back in the capital market by individuals.
Satish Menon, executive director, Geojit Financial Services said, "The Finance Minister’s announcement in the Union Budget 2019-20 to increase the no tax cap to those who have a gross annual income of Rs 5 lacs and those individual’s with a gross annual income of Rs 6.5 lakh provided they invest in tax saving schemes has buoyed the market sentiments. This is because a majority of the estimated 3 crore middle-class tax payers who is expected to benefit from the tax relief may invest the tax savings to the tune of Rs 18,500 crore into financial investments. Market has factored this positive news leading to a broad-based rally with all major indices clocking smart gains."
Led by big gains for Hero MotoCorp, Maruti Suzuki, Tata Motors and Eicher Motors Nifty Auto index gained 2.71 per cent. Nifty FMCG index also gained 1.34 per cent led by gains for Jubilant Food, Hindustan Unilever, ITC, Marico, HSK Consumer Healthcare and Dabur.
Realty stocks and housing finance companies also were big gainers with FM announcing several measures to boost housing sector. Nifty Realty index gained 1.25 per cent led by gains for DLF, Indiabulls Real Estate, Sobha, Oberoi Realty and Phoenix.
Bank stocks fell led by PSU banks as rating agency S&P Global Ratings in a bulletin said, “Former ICICI Bank CEO's case raises serious questions on governance at Indian banks.” As the news came during the market hours, bank stocks came under severe selling pressure.
The Nifty PSU Bank index fell 3.12 per cent while Nifty Bank index fell 0.77 per cent.
Among the top bank losers were Punjab National Bank(4.77 per cent), ICICI Bank(-3.05 per cent),SBI (- 3.76 per cent), Yes Bank(-4.53 per cent).
Mutual fund managers expect budget to have low impact on equity market as it’s a populist move by the government.
Anand Radhakrishnan – MD & CIO, Emerging Markets Equity, Franklin Templeton, India said, "We view this interim budget as a populist approach adopted by the government, though minimizing impact on the fiscal situation. Absence of strong positive or negative triggers makes this budget a low impact one from the equity market view. From an investor’s perspective, equity funds with core exposure to large cap and prudent risk taking in mid/small cap space may be well positioned to capture the opportunities presented by prevailing valuations in the market and expected earnings growth."
With budget over analysts expect market to be volatile till the general elections are over. Axis Mutual Fund in its comment said, “The budget is likely to be a sentimental positive for consumption and real estate. With a view of weakening fiscal conditions, the budget is likely to receive mixed signals from the equity market and is likely to keep markets volatile in the run up to the elections.”