Five factors why Sensex jumped over 700 points post Budget 2016
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Investors turned buoyant a day after Finance Minister Arun Jaitley tabled Budget 2016 as commitment to walk on the fiscal consolidation path fuelled expectations RBI governor Raghuram Rajan may go for an interest rate hike sooner than later.
The S&P BSE Sensex jumped 777 points to end the day at 23,779, while broader CNX Nifty topped its key 7,200-mark.
Brokerage firm Centrum Broking said the budget positively surprised on the fiscal path and walked a tightrope on tax fronts. With focus on fiscal prudence, the central bank will take an accommodative monetary policy stance as the markets will move on again and the focus will shift back to earnings and valuations which are far more reasonable, it added.
Meanwhile, Reserve Bank of India Deputy Governor S S Mundra on Tuesday said Budget 2016 is "pragmatic" and "balanced," and its focus on the rural economy and job creation will bring long-term benefits.
Mundra's reaction marks the first public comment from a senior RBI official on the budget.
Moreover, the strength in the rupee and positive Asian and European cues also boosted bullish sentiment.
We have compiled five factors that triggered markets to move higher:
1) Adherence to fiscal deficit fuels rate cut hopes
Finance Minister Arun Jaitley, to the relief of market adhered to stick with the fiscal deficit targets of 3.9 per cent for the fiscal year 2015-16 and 3.5 per cent for the FY17. Now, it is over to RBI governor Raghuram Rajan.
Brokerage firm Edelweiss said, "Arun Jaitley has put the balls in the RBI's court to cut interest rates. We believe monetary policy will be a keyfocus in the coming fiscal year."
Brokerage Centrum Broking also said a good balance between growth and fiscal adherence is the right ingredient for monetary policy easing.
Global financial services major BofA-ML and HSBC expect RBI to cut rates by 25 bps by April 5.
2) Positive cues from Asian markets
Most Asian markets zoomed in green terrain after China's monetary easing and downbeat manufacturing and service surveys raised hopes of additional stimulus measures.
The People's Bank of China on Monday reduced the amount of cash that banks must hold as reserves for the fifth time since February 2015. Experts believe it is a commendable move to revive a slowing economy.
3) Technical view
Brokerage Angel Broking said Monday's violation of recent swing low on intraday basis led to a confirmation of a positive divergence in 'RSI-Smoothened' oscillator on the daily chart.
The brokerage believes this development has a positive implication and traders should refrain from aggressive shorting in the market.
"Going forward, Monday's high of 7094.60 would now be seen as immediate hurdle for the bulls. On the flipside, 6970 would act as an important support level on a closing basis," added broking firm.
4) Tax relief
Markets heaved a sigh of relief on the fact that Jaitley did not extend the holding period for investment to qualify for Long Term Capital Gains (LTCG). Mihir Vora, Director and Chief Investment Officer, Max Life Insurance said the equity markets were apprehensive about higher capital gains taxes which did not materialize and thus boosted positive sentiment. However, the government increased the Security Transaction Tax (STT) on sale of an option in securities, where option is not exercised from 0.017 per cent to 0.05 per cent.
Ashish kumar Chauhan, MD & CEO, BSE feels this is a move in the right direction and would keep the current structure of the market intact going forward.
"The minor increase of STT on option premium from 0.017 per cent to 0.05 per cent is not expected to move the balance away from derivatives in India to the underlying equity market," said Chauhan.
5) Higher FDI cap in stock exchanges
The government on Monday said foreign entities would be allowed to own up to 15 per cent stake in domestic stock exchanges, a move that would help boost their global competitiveness.
The decision announced in the 2016-17 Budget speech by Finance Minister Arun Jaitley also comes against the backdrop of demand from various stakeholders who have been seeking higher foreign direct investment (FDI) in stock bourses.
"BSE welcomes this move as it is expected to improve the functioning of Indian stock exchanges and bring them on par with the best exchanges in the world," said Chauhan.
"This will also help attract more investments in India by creating stronger links with the best foreign exchanges," he added.