Bulls may continue to dominate Indian market for a long time, here's why

In the Union Budget 2021, Finance Minister Nirmala Sitharaman signalled that the government will not compromise on growth and will not resort to conservative methods of increasing taxes to fund CAPEX.

The market soared after the Budget. In just three sessions, equity barometer Sensex surged over 4,000 points, or nearly 9 percent, to hit its fresh all-time high of 50321.89.

"The Budget is growth-oriented and it is laying the ground for India to get to double-digit growth," Jhunjhunwala said talking to CNBC-TV18.

What is fuelling the bulls?

The market always looks forward. Bulls see that while the economy is improving and demand is coming back, the stimulus will keep the market adequately liquidated.

Quarterly earnings have been good, GST collection touched a record high and rating agencies are predicting a sharp bounce in the economy in FY22. Unless a strong, unexpected negative surprise appears, the market has no reasons to be subdued.

"We have a target price of 16,200 for Nifty by the year-end. Quarterly earnings have been good. If the GST collections continue to rise then I would want to believe that the tax-GDP ratio will also go up which is a big structural positive," said Pankaj Pandey, Head of Research, ICICI Direct.

Many analysts believe the tax collections will be better than what the government has estimated now.

"The FY22 fiscal deficit will be between 6 percent and 6.5 percent and the tax collections will be much better," Jhunjhunwala said.

In the long-run, earnings and economy are the two key decisive factors for the market. As the Budget 2021 has laid the foundation for India's rapid growth, earnings will improve further as Covid-19 fears ease completely.

"The Union Budget has set the foundation for the lifting of the Indian economy from under $3 trillion to $5 trillion. The Budget focusses on making India Atmanirbhar by investing big in infrastructure, manufacturing, and healthcare, to be aptly funded through higher fiscal deficit, in a benign interest rate scenario," said Vijay Chandok, MD & CEO, ICICI Securities.

Indian Inc. is expected to see a strong momentum on the earnings front.

“This coming growth phase for next few years provides some resemblance to the FY04-FY08 growth phase when Nifty50 earnings grew at a CAGR of more than 20 percent. However, the only difference between the start of that phase and now is that in 2003 Nifty50/BSE Sensex was trading at nearly 10 times on Fw PE and now we are trading near 22 times on Fw PE,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.

Having said that, the execution of policies remains the key.

If the government expedites the divestment process, it will be positive for the market. As Jhunjhunwala said that the government is withdrawing from the business which is positive.

"India needs business and bold enough to boost growth, but execution remains to be the key," said S Ranganathan, Head of Research at LKP Securities.

Amar Ambani, Senior President and Head of Research – Institutional Equities, YES SECURITIES, pointed out that the government has not been constrained by the fiscal numbers and has focussed on spending to get the economy back to its feet post the devastation of the pandemic.

"The key will be the execution of the plan. The divestment number will need a lot of work. The additional borrowing needs to be managed by RBI proactively to ensure that it does not impact the long-term rates significantly," Ambani said.

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