Sensex logs best weekly gain in absolute terms in nearly 7 years

Mumbai: India’s benchmark equity indices posted their best weekly gains in absolute terms in nearly seven years as investors cheered the government’s commitment to its fiscal consolidation road map in budget 2016 and prospects of lower borrowing costs as a result.

The rupee also stabilized, pulling back from near-record lows to post its highest weekly rise in nearly one-and-a-half years.

Finance minister Arun Jaitley’s decision to maintain the fiscal deficit target of 3.5% of the gross domestic product in his third budget, heedless of calls to prime the pump to boost economic growth, pleased investors.

Firm global markets also aided investor sentiment.

BSE’s 30-share Sensex closed up 39.49 points, or 0.16%, at 24,646.48 points on Friday, while the National Stock Exchange’s 50-share Nifty closed up 9.75 points, or 0.13%, at 7,485.35 points.

The Sensex gained 1,492.18 points, or 6.44%, in the week while the Nifty advanced 455.60 points, or 6.48%, in the same period.

In terms of points, the indices posted their best weekly gains since May 2009 and in percentage terms the highest since December 2011.

On 26 February, the rupee was just a whisker away from its August 2013 record low of 68.85 against the US dollar. It fell to as low as 68.7887 per dollar, but recovered to close at 67.10 per dollar on Friday.

It gained 2.3% this week, its biggest rise since September 2013, but is still down 1.42% for the year to date.

“There has been delivery-based buying as well as short-covering going on. The budget helped kick-start the rally after two dull months,” Jayant Manglik, president of retail distribution at Religare Securities Ltd, said, referring to the equity markets.

The Sensex and the Nifty are still down 5.63% and 5.8% year to date, respectively.

“These gains were preceded by the worst two months in a long time. The sharp rise in markets this week was on the back of intense underperformance,” said Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services Ltd.

“The budget was much better than expectations. The worst fears didn’t come true,” Agrawal said, pointing to the fact that the fiscal deficit target had been maintained and a much-feared increase in the holding period for long-term capital gains did not materialize.

There are also strong expectations that the Reserve Bank of India (RBI) may cut rates in the days to come, perhaps outside its monetary policy cycle, in response to the government adhering to the path of fiscal consolidation.

“Markets had one of the best weeks in a long time as Union budget exceeded expectations, mainly on account of fiscal prudence. Expectations of a rate cut by RBI sustained sentiments,” said Dipen Shah, senior vice-president and head of private client group research at Kotak Securities Ltd.

“Going forward, markets will watch out for the rate cut in the immediate term. Post that, quarterly results, monsoons, implementation of budget proposals and reforms will be the important triggers for the markets,” added Shah.

The BSE Bankex, BSE Realty and BSE Metal indices were the top performers this week, advancing 11.75%, 11.34% and 10.22%, respectively. The BSE Bankex and BSE Realty indices are still down 9.54% and 13.18%, respectively, year to date. BSE Metals index has managed to notch a gain of 0.55% for the year so far.

Banking stocks also surged after RBI on Tuesday eased Tier-I capital regulations at a time when banks are grappling with bad loans and higher provisions, which in turn are weighing on capital levels.

Top lender State Bank of India gained 20.58% this week, making it the best performer among Sensex stocks. Rival ICICI Bank Ltd was up 19.29% in the week, To be sure, these stocks are still down 16.04% and 15.66%, respectively, year to date.

“It is tough to say if the leaders of the gains this week will continue to rise. Will this rally be sustainable? It is difficult to say,” said Agrawal of Motilal Oswal.

Despite the rebound this week, Indian stocks and currency remain vulnerable, one equity strategist said.

Foreign institutional investors have been net sellers of $2.2 billion of Indian shares, and $1.1 billion of debt, year to date. Though they have been net buyers of Indian equities for the first four sessions of March, experts see more selling in the offing.