Benchmark indices Nifty 50 and BSE Sensex rose sharply on January 31 driven by short-covering ahead of the Union Budget presentation on February 1.
The Nifty 50 was up 279 points, or 1.6 percent, at 17,381.5, while the BSE-Sensex was at 58,169.4, up 1.7 percent or 963 points.
The market clocked gains despite the government suggesting a moderation of economic growth in 2022-23 to 8.0-8.5 percent from 9.2 percent expected in 2021-22.
Buying in the market was driven by traders who had rolled over large short positions in Nifty 50 to the February derivative series. The open interest in the Nifty 50’s February contract declined eight percent to 9.75 million, data on the NSE showed.
Prior to the Budget, foreign portfolio investors had carried net short positions of more than 50,000 contracts on the February futures of Nifty 50, reflecting pessimism among fears of faster-than-expected interest rate hikes in the US in 2022.
After the sell-off over the past two weeks, focus has shifted towards the Budget. Market participants expect the government to boost capital expenditure and provide support to the consumption economy.
Brokerages expect spending on capital expenditure to jump 20 percent for 2022-23 as the government continues on its path of investment-driven economic recovery. Economists also hope for some measures to alleviate the stress on the wallets of consumers in the lowest-income bracket caused by the pandemic.
“The budget must balance the twin objectives of growth and stability: uneven recovery demands continued policy support, whereas a wider trade deficit and likely Fed tightening warrant fiscal prudence,” said brokerage firm Edelweiss Securities in a note.
The gains in the market were also driven by a similar relief rally in global equity markets. Asian equities were higher in trade tracking the sharp gains in US stock indices on January 28. That said, the gains are still seen to be fragile given the concerns of tightening financial conditions across the global economy.
The volatility gauge India VIX jumped 6 percent in trade on January 31 to 21.93 points reflecting the level of uncertainty among market participants who are likely hedging their exposure to any steep market fall by lapping up put options of the Nifty 50, dealers said.
On the technical side, Gaurav Garg, head of research at Capitalvia Global Research, said that the 17,000 point level may act as an important support in the market. “If the market sustained above the levels of 17,300, we can expect the market to trade in the range of 17,000-17,500,” he added.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.