Budget 2018: The benchmark Sensex surged by 232.81 points on Monday to a record high after it opened up with a gap of about 50 points from its previous close to catch up with gains in the overseas markets—which were open on Friday even as domestic trading was shut due to Republic Day on Friday. Stocks in the US had gained and the dollar strengthened following a perk-up in yields on treasuries. This initial buoyancy got a further boost after the economic survey, presented in Parliament, predicted that India will likely witness a higher, 7-7.5% growth in fiscal 2018-19, up from 6.75% growth expected in 2017-18. The Sensex ended up by 0.65% at 36,283.25, while the Nifty rose 0.55% to end the day at 11,130.40. A point of concern, though, was that while the heavyweights surged the mid-cap and small-cap indices slid between 0.7% to 1.1% on Monday. Market participants said that, fall in the small and mid cap index was due to the profit booking and growing concerns on valuations. “Valuations of the markets are stretched, but at the same time we also feel that we will see earnings growth picking up from next financial year,” said Andrew Holland, CEO at Avendus Capital Alternate Strategies. “Over the past two fiscal years, the Indian stock market has soared, outperforming many other major markets. Since end-December 2015, the S&P index has surged 45%, while the Sensex has surged 46% in rupee terms and 52% in dollar terms. This has led to a convergence in the price-earnings ratios of the Indian stock market to that of the US at a lofty level of about 26.
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Yet over this period the Indian and US economies have been following different paths,” said the economic survey. It went on to suggest that Indian equity markets may have attained a new normal of trending at a higher PE, fuelled in part by the effect of demonetisation and other regulatory measures across asset classes. Holland suggested that, increase in oil prices remains a challenge for the markets and the economy. This view was echoed by the economic survey, which also indicated that there could be a dampening effect on gross domestic product (GDP) growth in the coming year due to an increase in crude oil prices.
The economic survey highlighted that against the emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a “sudden stall” in capital flows.
The gains in the equity market on Monday were led by the auto, IT and consumer durables stocks. Among index movers, HDFC and HDFC Bank together contributed more than 140 points to Sensex gains.