1. Budget 2017: Recent market gains may be thanks to easing demonetisation pain

Budget 2017: Recent market gains may be thanks to easing demonetisation pain

Indian stock markets pared previous gains on Tuesday ahead of the Economic Survey and the Union Budget, as traders booked profit after a recent rally led by the demonetisation pain easing faster than expected.

By: | Published: January 31, 2017 12:44 PM
Earlier last week, Nifty had gained 3.5%, its biggest weekly gain in eight months, as the demonetisation seems to have lower than expected negative outcome on corporate earnings. (Reuters) Earlier last week, Nifty had gained 3.5%, its biggest weekly gain in eight months, as the demonetisation seems to have lower than expected negative outcome on corporate earnings. (Reuters)

Indian stock markets pared previous gains on Tuesday ahead of the Economic Survey and the Union Budget, as traders booked profit after a recent rally led by the demonetisation pain easing faster than expected. BSE Sensex fell about 0.67% to 27,663.15 points, while NSE Nifty was down 0.77% at 8,566.7 points, giving up the 8,600-mark. Earlier last week, Nifty had gained 3.5%, its biggest weekly gain in eight months, as the demonetisation seems to have lower than expected negative outcome on corporate earnings.

Benchmark indices had risen to their highest in over two-and-a-half months led by a rally in bank and finance companies’ stocks on the back of good earnings, sending NSE Nifty above 8,600 points and BSE Sensex above 27,700 points. The recent surge in Indian indices has also been aided by the hope that the government may provide incentives to spur the economy in order to counter the impact of demonetisation.

Kotak Mahindra and HDFC Bank have announced good fiscal third quarter results and an improvement in asset quality, indicating that the demonetisation has not hurt the economy as much as was being feared earlier. The recent performance of the Indian benchmark indices is in contrast to how the markets have behaved just ahead of the budget over the past few years. Indian large cap, midcap and small cap benchmark indices have typically fallen by up to 5% in 10 days before the Budget for the past seven years.

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Last year, BSE Sensex fell 3% in 10 days before Finance Minister Arun Jaitley presented the Budget 2016. Before that, benchmark indices fell up to 1% in 2015, 2.63% in 2014; and up to 5.8% in 2013. What remains to be seen is the government’s follow through on fiscal discipline, which could steadily lift the markets through the year.

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