Sensex, Nifty clock strongest Budget day rally after FM's speech cheers investors

The 30-share Sensex took a big leap on the Budget Day and jumped over 2,000 points to end 5% higher, recording the strongest rally in the past 20 years.

The index recorded its biggest Budget Day gain ever since 1997, as the first digital Budget in the history of India ticked all the right boxes for the equity market, with heavy buying seen in PSU banks, banking, infra and metal stocks. Sensex had gained over 6% since Budget day in 1997.

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Both benchmark indices Sensex and Nifty closed 5% higher on Monday. BSE Sensex ended 2,314 points higher at 48,600 and NSE Nifty 50 index gained 646 points to 14,281. Intraday, Sensex surged 2,478 points to hit the day's high of 48,381. Similarly, NSE rose 701 points to hit intraday high of 14,336. Nifty Bank hit at an all-time high today. Meanwhile, selling was witnessed only in the pharma and IT stocks. Market breadth favoured advances, with the advance-decline ratio at 5:2.

The 2021 Union Budget announcements that cheered investors today included a hike in foreign direct investment (FDI) limit in insurance from 49% to 74%, scrappage policy for vehicles, privatisation of two nationalised banks and proposal of monetisation of assets. Absence of the much-feared COVID-19 cess and the surcharges on Income Tax also boosted market sentiment.  

The muted response of the market on the Budget Day was quite common in the past years. But this changed in the last two budgets, with the swings witnessed in either direction.

Today's rally was unexpected, given bearish cues from global markets, pre-budget FII selling, last week's profit booking and post the 1,500 points plunge on Friday, over the release of the annual economic survey.

So far, Nirmala Sitharaman's Budget day speeches had failed to cheer Dalal Street. Sensex witnessed a sharp fall of around 1,000 points or 2.43% and closed right below 40K when the Budget was presented in 2020. In 2019, when Sitharman presented her first Union Budget, the index had closed a mere 0.59% higher.

However, this time, Union Finance Minister had promised 'never before' like Budget.

Further, the market continued in the bullish zone since the opening bell and stayed in the green zone throughout the budgetary session, unlike earlier budgets that registered extreme swings in equity markets.

While the highest fall of 5.12% was registered in 2000 Budget day, this year's index jump of 5% marks the biggest gain registered in the last 20 years. During the same period, the previous best was the 2001 Budget, that recorded the second-highest closing for Sensex with a gain of 4.36%.

Of the last 10 budgets, benchmark indices mostly ended with a muted response after registering high volatility throughout the session.

The market saw major falls in the earlier decade of 2000-2010. Besides the drop of 5.12% in 2000, the Sensex slumped 4.01% in 2007, 3.82% in 2002, 3.42% in 2009 and 2.26% in 2004.

Expert views on Budget 2021

Devang Mehta, Head Equity Advisory, Centrum Broking said,"This is surely an expansionary budget, with a vision to spur CAPEX, infrastructure & healthcare spending. The way forward for divestments, privatization & asset monetization looks promising. Going with a sharp correction into the budget, the street was enthused by the absence of negatives and an attempt to be focused on robust growth for key sectors & in turn boost economic growth. The market cheer was also led by an underlying pessimism on raising tax rates or taxing the super-rich, which was prevailing in the market in the last couple of weeks, which did not materialize & was a pleasant surprise."

Anshuman Singh, Chairman, and Managing Director, Stellar Value Chain Solutions said: "The government's focus on infrastructure development and the budget proposal for a sharp increase in capital expenditure for FY2021-22 will make the supply chain more agile and operationally efficient. The proposal to monetise dedicated freight corridors and airports will open up a new frontier of supply chain solutions and these are steps in the right direction."

Jimeet Modi, Founder & CEO Samco Group said, "Markets heaved a sigh of relief in absence of any major change in personal or corporate taxes and therefore reacted positively. The principal theme of Budget 2021 was definitely a capex and infra led budget which is positive for cement, heavy industries, insurance, PSUs and private sector banks who came out as prominent beneficiaries while autos and domestic electronics manufacturers prima facie appear to be at the back foot.

V.P. Nandakumar, MD & CEO, Manappuram Finance said,"A progressive and growth-oriented budget presented under difficult circumstances that has also given serious consideration to some of the persistent problems of the banking and financial services sector. We are pleased that the FM has reduced the eligible loan amount for recovery under the SARFAESI Act for NBFCs. It will help in strengthening the NBFC sector by improving credit discipline among borrowers. The one concern we have is about the elevated fiscal deficit and its potential inflationary impact. Going forward, the onus will be on the government to ensure that the deficit levels are progressively brought down in tune with its projections."

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