A powerful rally in auto and banking shares lifted the Sensex 623 points—the highest single-day gain in absolute terms in over 21 months—on Tuesday, as investors appeared to be focussing on the positives in the Union Budget.
Strong February sales numbers announced by automobile companies ignited a buying frenzy in the stocks, while the lower borrowing target of the government for FY12 is expected to keep interest rates in check and so benefit banks and real estate shares.
The 30-share Sensex closed at 18446.50, up 3.5% over the previous close. The gains in auto, banking and realty shares were even more impressive. The BSE Auto index gained around 6%, and the BSE Banking and BSE Realty indices by around 4% each.
Yet, most players are cautious in their outlook on the market for the next few months as they feel the local macro issues and concerns over volatile crude oil prices may not have fully played out yet.
"We remain positive on the equity markets for the year ahead, but believe sustainable returns will be back ended as the policy initiatives announced fructify and as high inflation and tight liquidity roll over into the year," brokerage house JP Morgan Securities said in its post-Budget note.
The big gainers among index components included Maruti Suzuki, Tata Motors and Mahindra & Mahindra, which gained 5-8%. Star performers in the banking sector were ICICI bank and HDFC Bank, up 6% and 4% respectively.
Mid-cap and small-cap shares too performed in line with their large cap counterparts. But brokers caution that it is too early to say if the bearish trend in the market has reversed.
"I think markets should trade lower, at least during the next three-four months," says Sandeep Bhatia of Kotak Securities, as he sees liquidity constraints because of government borrowings, and earnings downgrades of companies.
"The borrowing programme of the government is always front ended. So, we will see pressure on rates coming through. Also, the real issue is whether we will see the bottom of earnings downgrade in the current quarter. After that, we will look around to see if commodity prices are coming off and margins can hold and expand in the second half of the year," he said.