In continuation of the one-day-up and one-day-down pattern seen for the sixth consecutive session, Sensex on Wednesday ended over 600 points at 71,752 while Nifty also scaled above the 21,700-levels with everyone busy forecasting the outcome of tonight’s US Fed meeting and tomorrow’s Interim Budget.

The headline rally was led by 1-2% upside in heavyweight bank stocks and Reliance Industries (RIL). Broad-based buying was seen across auto, realty and healthcare stocks.

Dalal Street’s retail army, who have been betting heavily on smaller stocks, were once again rewarded handsomely as the smallcap index outperformed with 2% rally. In the last one month, Nifty is flat while Nifty Smallcap 100 has outshined with 5.8% return while Nifty Midcap 100 is also up 5.2%.

Today’s top gainers were PB Fintech, Godfrey Phillips, Brightcom, UCO Bank, Vardhaman Textiles, Vakrangee, TCI and HCC.

FII selling, which has crossed Rs 24,000-mark so far in the month, has been the biggest pressure point for Nifty bulls in 2024.

Key factors behind today’s rally in Sensex, Nifty ahead of Budget, Fed meeting:

1) Budget

Investors are walking into the Budget session with lower expectations as it would be an interim one ahead of the Lok Sabha elections later in the year. PM Narendra Modi, however, said that Finance Minister Nirmala Sitharaman will present the Budget with “disha-nirdeshak baatein” which indicates that the government may lay out its policy for FY25 without committing budgetary allocation.

Given the continued ability to undertake capex and reduce the market borrowing and a likelihood of no major taxation changes in a vote-of-account budget, it would be perceived neutral to positive by both equity and fixed income markets, said Namrata Mittal, Chief Economist, SBI Mutual Fund.

The domestic market will be focused on the interim Budget particularly on any proposals regarding taxation of investments relating to the capital market. “The fiscal deficit and its glide path also is important since growth with stability is hugely important from the market perspective. Stock specific movements are likely in response to sectoral allocations in the Budget,” said VK Vijayakumar of Geojit Financial Services.

2) Fed expectations

The US Fed is widely expected to announce that it is sticking to its current benchmark interest rate, with questions remaining over when rate cuts will finally come. Global markets will be keenly watching the Fed comment on the timeline and quantum of rate cuts. The first rate cut is likely to come in June 2024, Vijayakumar said.

It would be important to see whether the Fed maintains its dovish stance or surprises the market with a hawkish tone.

3) Bond yields

Ahead of the US Fed’s policy decision, the 10-year US bond yield was inching downwards towards the 4% mark which is positive since it will restrain FPI outflows.

Traders are baking in 41% possibility of a rate cut in March, down from 88% last month, shows CME’s FedWatch Tool.

4) Low-level buying in bank stocks

Banking stocks, which have been under selling pressure this month, were back on investor radar with Nifty Bank jumping 1.4%. The banking index is down about 5% this month as HDFC Bank has been facing investor wrath after Q3 miss.

With investors now convinced that any further dip is likely to be absorbed by LIC, which has got RBI nod to hike stake up to 9.99%, HDFC Bank shares rallied 1.3%. PNB was the top gainer as it ended 5% higher. Other PSU bank stocks that rallied include Bank of Baroda and SBI.

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