Sensex, Nifty close at record highs: Five factors behind the market rally

Benchmark indices continued cheering Union Budget 2021 for the second straight session and ended 2.5% higher on Tuesday. Sensex reclaimed the key 50,000 mark after six sessions in early trade today after FM Nirmala Sitharaman's third Budget speech enthused investors.

After a volatile trading session, Sensex ended 1,197 points higher at 49,797 and Nifty gained 366 points to 14,647, amid positive global equities. Before closing at fresh record highs today, Sensex and Nifty hit intraday highs of 50,154 and 14,731. Sensex and Nifty hit fresh lifetime highs of 50,184 and 14,753, on January 21.

Yesterday, BSE Sensex ended 2,314 points higher at 48,600 and NSE Nifty 50 index gained 646 points to 14,281.

State Bank of India, HDFC Bank, Larsen & Toubro, Hindalco, UPL and Bharat Petroleum Corporation were among the top gainers today.

Here's a look at five factors that led to a 2.5% rise in Sensex and Nifty today:

1. Budget rally

Indian stock market gave a thumbs up to Union Budget 2021 with Nifty breaching 14,000 in the budget session and BSE benchmark Sensex breaching 50,000 in today's session.

Investors cheered the Budget proposal to raise foreign direct investment (FDI) limit in insurance from 49 per cent to 74 per cent, scrappage policy for vehicles, as well as privatisation of two nationalised banks and proposal of monetisation of assets. Absence of the much-feared COVID cess and the surcharges on Income Tax also boosted market sentiment.  

Ajit Mishra, VP - Research, Religare Broking said,"Markets witnessed fireworks all-around as the government set the roadmap for the economic recovery in the Union Budget by focusing on growth. After the initial downtick, the benchmark traded buoyant for most of the session and gained noticeable momentum after the budget speech got over. The FM in her budget speech prioritize growth and allocated funds for sectors such as infrastructure and healthcare. Further, investor's sentiments improve as no additional taxes on LTCG, STT, COVID cess etc was imposed."

2. Global cues

Asian stocks were trading higher on Tuesday following an overnight jump on Wall Street. Chinese manufacturing activity in January came in at 51.5. Meanwhile, Japan extended the state of emergency till March to contain covid-19. Investors also awaited the Reserve Bank of Australia's rate decision today.

European markets closed higher supported by global positivity and as investors shrugged off concerns regarding recent speculative trading frenzy with IT stocks leading the pack.

US markets bounced back from last week's lows and traded higher on Monday, the first session of February. Meanwhile, a group of 10 Republican senators sent President Joe Biden a letter on Sunday, urging him to consider a smaller, scaled-down Covid-19 relief proposal. His current plan calls for $1.9 trillion in additional fiscal stimulus.

3. Foreign fund inflows

Foreign institutional investors (FIIs) welcomed FM's Budget speech and bought shares worth Rs 1,494.23 crore in the Indian equity market on February 1.

FIIs had earlier sold shares worth Rs 12,731 crore in the domestic market since January 22, amid pre-budget volatility faced last week.

Vinod Nair, Head of Research at Geojit Financial Services said,"Start of a new rally is noticed in sectors like banking, infra and auto, supported by a renewed traction provided by a growth-oriented budget. After consecutive selling by FPIs last week, the market witnessed a reversal in trend becoming net buyers post the budget. Positive global sentiments ahead a new US COVID support bill also lifted the market."

Shashi Kiran Shetty, Chairman, Allcargo Logistics, ECU Worldwide and Gati said,"At a time when the Indian economy has been scaling a fast recovery trajectory, FM Sitharaman has effectively navigated the challenge of balancing fiscal concerns and addressing economic growth. This is further strengthened by the 13 points that outline the vision for a Self-reliant' or 'Aatmanirbhar' nation. In light of the 6 pillars of this vision namely - health and wellbeing, capital and infrastructure, inclusive development, reinvigorating human capital, innovation and R&D, and minimum government and maximum governance-the initiatives to drive ahead FDI and FII inflows, infrastructure spend and facilitate legal and tax settlements are also noteworthy."

4. Rally in heavyweights

Shares of top eight companies from the 30-share S&P BSE Sensex that hit fresh 52-week highs today include State Bank of Bank (SBI), ITC, Larsen & Toubro (L&T), UltraTech Cement, HDFC Bank, ICICI Bank, Bajaj Auto, and Bajaj Finserv.

On NSE, Adani Total Gas, ICICI Bank, Lakshmi Machine Works, Tata Teleservices (Maharashtra), Raj Oil Mills, HSIL, Orchid Pharma, Modi Rubber, Ganesh Housing Corporation and Max Healthcare Institute hit fresh 52-week highs today.

S Ranganathan, Head of Research at LKP Securities said," A growth and CAPEX oriented Budget has provided ammunition to the Bulls as the BSE Sensex attempts to scale 50K yet again. Several stocks notched up 52-week highs today in the broader market even as pivotal across sectors helped Indices notch up gains. The spectacular listing of the Paint company surprised the street as it recorded huge gains today on the listing."

5. Technical view

All sectoral indices closed in the positive zone today, with over 3% rise registered in media, banking, financial and realty stocks. Market breadth favoured bulls once again as 1,755 shares advanced and 1,184 scrips declined. Market capitalisation of BSE-listed companies rallied Rs 4.12 lakh crore to Rs 196.65 lakh crore.

After Budget 2021-2022, macro data, ongoing corporate earnings season and global market performance will impact stock market movement this week.

Ashis Biswas, Head of Research at CapitalVia Global Research said," Strong trends in the market and an attempt to overcome the resistance level around the Nifty 50 Index level of 14750 (high as on 21st Jan 2021). While a breakout above 14750 is the key factor from a short-term perspective, the market is likely to maintain momentum and reaches the level of 14950-15000. The momentum indicators like RSI, MACD to recover from their low made in the last week of January 2021. As such odds of a fresh breakout is significantly high."

On market closing --Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments said, "The Nifty failed to get past the 14750 level which is a crucial point. Crossing this level would cement the upside direction of the markets which should lead us to 15000. However, it is advised to enter on dips or mild corrections. The index has good support at 14100 and hence we should accumulate positions closer to that level."

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