Indian Indices Cheer Union Budget 2021; Sensex Ends 5% Higher, Bank Nifty Hits Record High

Mon, 1 Feb Closing

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Share markets in India broke the six-day losing streak and give complete thumbs up to the measures announced in the Union Budget 2021 by the Finance Minister to speed up growth.

The Budget announcements for healthcare, auto, and infra gave a fillip to the stock markets and benchmark indices surged over 4.5%, while the Bank Nifty hit its record high level today.

The stock market was also relieved as the government avoided any extra cess or increase in Securities Transaction Tax.

Absence of the much-feared COVID-19 cess and the surcharges on Income Tax also boosted stock market sentiment.

At the closing bell, the BSE Sensex stood higher by 2,314 points (up 5%).

Meanwhile, the NSE Nifty ended up by 646 points (up 4.7%).

IndusInd Bank and ICICI Bank were among the top gainers today.

UPL, on the other hand, was among the top losers today.

SGX Nifty was trading at 14,358, up by 638 points, at the time of writing.

The BSE Mid cap index and the BSE Small cap index ended higher by 3% and 2%, respectively.

On the sectoral front, banking stocks, finance stocks and realty stocks witnessed huge buying interest. The banking sector ended higher by 8.3%.

Asian stock markets ended on a positive note. As of the most recent closing prices, the Hang Seng was up 2.1% and the Shanghai Composite stood higher by 0.6%. The Nikkei ended up by 1.5%.

US stock futures are trading higher today indicating a positive opening for Wall Street indices with the Dow Futures trading up by 204 points (up 0.7%).

The rupee is trading at 73.09 against the US$.

Gold prices for the latest contract on MCX are trading down by 1.7% at Rs 48,245 per 10 grams.

Finance Minister Nirmala Sitharaman proposed to cut duty on gold and silver to 7.5% from 12.5%, meeting industry demand. This led to a sharp drop in gold futures prices that fell by nearly Rs 1,800 from day's high to below Rs 48,000 today.

To know more about gold, you can check out our detailed article on investing in gold here: How to Invest in Gold?

Here are some of the important highlights from the Union Budget 2021...

Finance Minister Nirmala Sitharaman said we had two main objectives when making the Budget:

• Spend big on infrastructure.
• Attend to the need of the health sector.

PM Narendra Modi said that the Budget focuses on increasing farmers' income and several measures have been taken in this direction. Farmers will be able to get loans easily. Provisions have been made to strengthen APMC markets with the help of Agriculture Infrastructure Fund

New agri infra cess to be applicable from February 2, 2021.

• Agri cess of Rs 2.5/litre on petrol & Rs 4/litre on diesel.
• Agri infra cess of 2.5% on gold, silver, & dore bars.
• Agri infra cess of 100% on alcoholic beverages.
• Agri infra cess of 17.5% on crude palm oil.

The Budget left personal income tax rates unchanged. Some announcements from the personal income tax space included:

• There is a change in double taxation on non-residential Indians (NRIs), especially those who return to India. Relief is also being looked at for those who face difficulty in getting credit for taxes paid in India.
• There is massive relief extended to a section of senior citizens. For those aged 75 or more, and who only have pension and interest income, filing their income tax returns will not be required.
• Affordable housing got a boost as the benefits available to those who avail deduction for buying an affordable home will now be extended to those who take a housing loan until March 31, 2022.
• Several tax-paying citizens who lost their jobs last year due to Covid-19 and had to take up freelancing assignments will get some relief from Budget 2021. Social Security Benefits will be extended to gig and platform workers. E-commerce workers will now be brought under Employees' State Insurance Scheme (ESI), Employees' Provident Fund (EPF) and the minimum wage rule. Women will be allowed to work in all categories in night shifts too.

The government raised the limit for Foreign Direct Investment (FDI) in the insurance sector to 74% from 49% - with safeguards. FM Sitharaman also that that the government intends to amend the Insurance Act, 1938 and will launch a new investor charter for investor protection. It will launch a securities market code which will include the Government Securities Act and the Depositories Act.

An asset reconstruction and management company will be set up for stressed assets. In FY22, PSU bank recapitalisation plan is of Rs 200 billion. The government will allow sale of distressed assets to Alternate Investment Funds (AIFs). The NCLT framework will also be strengthened to implement e-courts. All divestments announced so far, are to be completed in FY22.

It also proposes to divest two PSU banks and one general insurance company in FY22. Further, divestments of BPCL, Container Corporation, Pawan Hans, and Air India will be completed in FY22. FY22 divestment target is at Rs 1,750 billion.

The government will create a new list of companies for divestment. The government will form a special purpose vehicle (SPV) for monetising land owned by state-owned PSUs and will set up separate administrative structure for co-operatives.

An independent gas transport system will be set up and 100 more districts will be added under the City Gas Expansion. The government is also looking to double ship recycling capacity by 2024. Seven port projects worth more than Rs 200 billion will be undertaken in FY22. A scheme to assist discoms will be launched with an outlay of over Rs 3,000 billion. The Ujjwala Scheme will cover an additional 10 million beneficiaries.

Five major fishing hubs to be developed to promote the fisheries sector. Additionally, a sea weed park is also being planned in Tamil Nadu.

Social security benefits to be extended to gig and platform workers. Employee State Insurance Corporation benefits too would be provided. Women will be allowed to work in all categories in night shifts too.

The '1 Nation 1 Ration Card' plan is under implementation by 32 States & Union Territories. The Centre will launch a portal to collect data on migrant workers. Further, social security benefits will be extended to platform and gig workers. Minimum wages will apply to all categories of workers.

Finance Minister Nirmala Sitharaman also said that Life Insurance Corporation of India (LIC) will go for an initial public offering in 2021-22. The much-awaited LIC IPO is likely to be the largest share sale.

With the optimism seen in stock markets on the back of budget announcements, the question on your mind must be - Is it Time to Plan for Sensex 100,000?

Tanushree Banerjee answers this question in today's edition of the Profit Hunter. Here's what she wrote...

• So, the time to prepare for Sensex 100,000 is here, as long as you set your expectations right. The ride won't be smooth.
  
  And the gains may no longer be concentrated in Sensex stocks.
  
  Yes, you read that right.
  
  Today, the markets may cheer Budget day gains in Sensex stocks.
  
  But the underdogs, according to me, are the stocks beyond the Sensex.
  
  Sound, solid, well managed businesses with tons of free cash could attract more investor interest in the days to come.
  
  Sectors that have been side lined for years could be back in the spotlight.
  
  Promising startups may fuel of the growth of companies that acquire them.
  
  And the real Budget gains could be in the most underrated stocks over the years to come.
  
  So, sit back and enjoy the gains.
  
  But remember, act only when the time and valuations are right.

We are on top of the budget announcements and the implications it will have for stock markets. Stay tuned to get all the updates form this space.

Also, with the recent rally seen in stock markets, the smallcap index has gained more than 100% since the lows in March 2020.

While caution is indeed warranted, Richa Agrawal, Research Analyst at Equitymaster, thinks there is still a lot more steam left to this smallcap rally.

Despite rallying more than 100% since the March 2020 lows, Richa believes small-cap stocks are set for a massive up move in 2021 and beyond.

Here's what she wrote in a recent edition of Profit Hunter...

• The P/E for smallcap index doesn't make sense. There are thousands of listed small companies. Some have negative earnings. The base is not a valid data to work with.
  
  That said, the closest proxy to relative valuations is the Smallcap to Sensex ratio,
  
  Historically, this ratio has averaged 0.43x. In the previous mega runs of the smallcap index, this ratio has gone as high as 0.75x.
  
  In January 2018, when smallcaps peaked, the ratio was at 0.58x.
  
  Guess where this ratio is now after a 100% run up in the smallcap index?
  
  0.38.
  
  It's lower than the median over 2 decades.

Richa believes if you focus on the quality of business, margin of safety in valuations, and an optimum asset allocation, you are likely to create huge wealth for yourself.

Richa was on YouTube with a video on the revival in smallcaps. Should you buy, hold or sell your smallcaps?

Find out in this video.

Speaking of videos, India's #1 trader, Vijay Bhambwani, was on YouTube with a video where he talks about why the big boys in the market are now under threat from retail traders.

Tune in here to find out more:

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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