The new Budget date of February 1 seems to be lucky for Indian equity investors as benchmark indices have given robust returns in the run up to the Budget for a second consecutive year. Till date this year, Nifty 50 has gained 4 per cent already and it’s just a matter of six more trading sessions before the Budget is announced on February 1.
In 2017, Nifty 50 had gained 6.6 per cent in the one month to the Budget day - the highest since calendar year 2008.
“It seems that our markets are replicating last January’s performance as we can see addition of another 4 per cent from December (2017) close,” Sameet Chavan, Chief Analyst — Technical and Derivatives, Angel Broking, said.
Before 2017, Nifty had fallen in the range of 0.6-7.0 per cent one month ahead of the Budget day in eight out of eleven budgets (including interim budget). In the remaining three, gains were 0.7-1.4 per cent. (The Union Budget used to be announced on February 28 or 29 (leap year) before 2017.)
Indian equity markets hit new lifetime highs several times and gained 27-28 per cent in 2017 due to a combination of factors, such as fading effects of demonetisation, pre- and post-GST regime, robust inflows from mutual funds, falling crude prices and inflation (until last few months), stable gold prices, improving corporate financial performance, rally in auto/metal stocks, run-up in realty stocks post RERA, favourable outlook towards IT sector recently and positive news flow in the banking sector (recapitalisation, FDI), among others.
The rally continues this year too due to optimism about a good Budget after the twin blows of demonetisation and GST in 2017 on the common man and the Indian economy, respectively. On Monday, Nifty 50 closed at a new high of 10,966.20, up 4 per cent till date in 2018.
Risk factors “The market continued its upward trajectory by supporting the premium valuation with better third quarter earnings. FIIs’ continued preference for domestic market on expectation of a good Budget lifted the market sentiment,” said Vinod Nair, Head of Research, Geojit Financial Services.
While the Budget may not necessarily be highly populist due to fiscal constraints, a lot of focus is expected to be on areas such as rural economy, agriculture, infrastructure, housing and reducing the burden of direct taxes on the common man, which will, in turn, help kick-start the economic growth. However, the government will have to consider the downside risk factors, such as rising crude/commodity prices, spike in inflation, firm interest rates, continued high non-performing assets and lower-than-expected revenues from GST before wooing the citizens for the General Elections in 2019.
December 2017 quarter results so far have also been encouraging across most sectors and especially from biggies, including RIL, ITC, Hindustan Unilever and Infosys according to experts. This has also helped maintain good sentiments and buying momentum.