Sensex, Nifty near Record Highs on Budget Optimism; ITC Weighs

The BSE Sensex jumped 200 points while the 50-share Nifty traded above the key 8,950 on Monday on optimism that Budget announcements will increase corporate earnings and push growth. The BSE Sensex and Nifty neared the previous highs of 29,844.16 and 8,996.60 in morning trade.

The rally on Monday was led by banking stocks, especially private sector lenders. However, cigarette maker ITC continued to see selloff after as the Budget proposed steep hike in excise duty. ITC is the most influential stock in the Sensex and Nifty and selling pressure in the stock has weighed on benchmark indices over the last two sessions.

Mr Jaitley announced Rs 70,000 crore more to increase spending on the country’s infrastructure, a step likely to kick start the investment cycle and put the economy back on track.

He also promised lower-than-expected borrowing despite raising the fiscal deficit target. The finance minister proposed a cut in corporate tax to 25 per cent from 30 per cent over four years; he said GST implementation from April 1, 2015 remained on track.

Mr Jaitley also announced several measures to woo foreign investors, who have been the backbone of the current rally that has seen Indian stocks outperform most emerging markets. He deferred the dreaded General Anti Avoidance Rule (GAAR) by two years and proposed to extend a concessionary rate of 5 per cent for so-called withholding taxes on debt investments by foreign investors by two years, until July 1, 2017.

Most brokerages gave a thumbs-up to Finance Minister Arun Jaitley’s Budget proposals. CLSA said Saturday’s Budget gave Infra push despite fiscal constraints; faith in growth economic recovery stays intact. Citi said Budget meets bar and aggressively builds on its eco-social thrusts. It’s good enough to consolidate market.

Goldman Sachs said the Budget is rightly focused on reviving investments and decentralization. It expects bond yields to continue to come off gradually.

Credit Suisse applauded the Budget for higher allocation to plan expenditure and credible projection about tax collections. Morgan Stanley expects the Reserve Bank to cut interest rates by 125 basis points this year and says a rate cut could come as early as this week. Nomura said the proposal to cut corporate tax rates after a long time is positive.

The Sensex traded 171 points higher at 29,532 as of 09.20 a.m. while the Nifty was up 50 points at 8,952.

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