The Centre’s intention to keep to the fiscal deficit target of 3.5 per cent in FY17 calmed the market’s nerves on Tuesday, with benchmarks shooting up well over 3 per cent, making their largest single-day gains in a little under three years. The Sensex gained 777.35 points (3.38 per cent) to close at 23,779.35, while the Nifty moved up an impressive 235 points to close at 7,222.30.
Major Asian indices in China, Japan and Hong Kong also closed up on Tuesday while Europe opened in the green.
Tuesday’s movement came as a surprise to participants after the Sensex tanked 152 points after the Budget had little incentive for the corporate sector. However, brokers said the government’s commitment to the fiscal deficit now allows the RBI more room to cut interest rates and keep inflation in check.
In the past few weeks, Reserve Bank Governor Raghuram Rajan has warned that if the government missed its deficit targets, it would find few takers for its sovereign debt.
Tuesday’s exuberance was shared by the broader markets too. Both the BSE-100 and BSE-200 gained over three per cent each as did the MidCap and SmallCap indices.
Nifty show
On the NSE, all sectoral indices closed in the green, with the Bank Nifty up 3.34 per cent. The Nifty Auto gained 4.28 per cent while the Nifty FMCG gained 5.38 per cent. Volatility index India Vix gained 7.37 per cent to close at 18.6725.
The fiscal deficit target encouraged foreign investors the most, brokers said, since this paints India in better light than other emerging markets. Foreign portfolio investors bought net equity of ₹2,912 crore on Tuesday while domestic institutions took the opportunity to sell, offloading net equity of ₹834.59 crore. Retail investors sold net equity of ₹333 crore on the BSE.
“During the past few weeks, the markets have been consolidating,” said Motilal Oswal, CMD, Motilal Oswal Financial Services. “Now, there is no negative trigger left with the disappointing results 40 days past.”