Sensex, Nifty headed up or down after nearing all-time highs in post-Budget rally?

Market watchers see the sustainability of the current rally in markets propelled by Budget 2021. Image: Reuters

Indian share market benchmarks BSE Sensex and Nifty 50 were trading near all-time high levels on Tuesday. The share market benchmarks hit record highs on January 21, 2021; and since then, tumbled 7.76 per cent till January 29, mainly due to pre Union Budget 2021 jitters. However, on Monday, 1 February 2021, Sensex and Nifty 50 posted the biggest budget gains in 22 years. In 1997, markets surged 6 per cent on the budget day. From Friday’s close, headline indices have zoomed over 8 per cent and are just shy of record-high levels.

This budget rally was primarily driven by the absence of any negatives such as no introduction of new COVID tax. The biggest leaders of this rally were bank stocks after Union Finance Minister Nirmala Sitharaman announced the setting up of an Asset Reconstruction Company (ARC) and introducing a plan to recapitalise public sector banks. The government also announced the intention to privatise two state-run lenders.

Also read: Top Budget stock picks: Buy these shares to pocket gains as Sensex, Nifty resume upward march

In today’s trade Sensex zoomed to 50,154.48, just shy of 30 points from an all-time high, while Nifty50 reached 14,732 level which is just 21 points away from its record high. The Nifty Bank index has also hit a fresh 52-week high on Tuesday. So, the question in market participants’ minds is- Is this rally sustainable? Market watchers see the sustainability of the current rally in markets propelled by Budget 2021.

Is there more steam left in share market rally?

Rajesh Palviya, Head – Technical & Derivatives Research, Axis Securities Ltd, told Financial Express Online that Nifty and Bank Nifty have formed strong bullish candles on the daily charts which indicates more bullishness ahead. Currently, Nifty is trading above 20 and 50 DMA, indicating that bulls are back in control. “We can see upward momentum towards 14800-14950 in the short term, one should hold their long position and trail stop loss towards 14300,” Palviya said.

Another analyst believes that Nifty 50 has entered in a very broad consolidation going ahead. Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, told Financial Express Online that going ahead from here, the NIFTY is likely to stay in this broad trading range. Any directional move beyond 14750 and any move below 13750 is not expected. Vaishnav added that this range is a bit wide but these are the most immediate levels available on the charts.

What do fundamental readings say?

The positive momentum could continue in the near term on the back of a strong budget, Ajit Mishra, VP Research, Religare Broking, told Financial Express Online. However, in the medium to long-term, earnings recovery would be crucial for markets to sustain these valuations. “For investors, we would recommend ‘accumulate’ stocks in a gradual manner in sectors like Banking (mainly private), Auto, FMCG, Capital Goods and Cement,” Mishra added.

Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities, said that the growth-oriented budget has ignited a spark in all cyclical and economy driven sectors including banking and NBFCs. The earnings season is throwing a good earnings surprise which is also getting factored in stock prices. Oza also added that with clarity on growth and earnings, it will be ideal to focus on economy driven sectors like capital goods, construction, engineering, cement, power utilities, oil & gas, banks, Insurance and NBFCs. “As valuations are rich and the Nifty 50 index has again gone closer to the 15,000 mark, there could be some resistance setting in at these levels,” he said. Rusmik Oza advised that investors can now look to accumulate stocks in every decline with a 2 to 3 year view.