Rough ride for Indian stocks will continue post budget with history as guide

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Updated: Jan 31, 2021 2:27 PM

The Sensex had a blistering advance last quarter -- even as data showed that the economy had plunged into recession -- led by record inflows from foreign investors. But there are signs the rally is petering out.

Stock Market UpdateThe S&P BSE Sensex index has climbed in the month after budget day on only two of the past seven years since Prime Minister Narendra Modi came to power.

If history is a guide, the recent rough ride for Indian stocks will continue after Monday’s budget. The S&P BSE Sensex index has climbed in the month after budget day on only two of the past seven years since Prime Minister Narendra Modi came to power, while falling or staying rangebound on other occasions. Risks are compounded in 2021 given stretched valuations.

“There are expectations that the government will keep aside fiscal prudence and open its pockets to spend more,” said Ajit Mishra, vice president of research at Mumbai-based Religare Broking Ltd. “Investors and businesses are pinning high hopes on the budget and any disappointment could lead to profit-taking.”

The Sensex had a blistering advance last quarter — even as data showed that the economy had plunged into recession — led by record inflows from foreign investors. But there are signs the rally is petering out: the index clocked its biggest weekly decline since early May from its peak on Jan. 20. “Valuations are correcting from all time high levels for most sectors,” said Dhiraj Relli, chief executive officer of Mumbai-based HDFC Securities Ltd. “We don’t expect significant upside.”

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