Why Sensex jumped over 2,000 points on Budget Day?

The Indian stock market gave a big approval to the Union Budget 2021 with NSE Nifty breaching 14,000 levels and BSE Benchmark Sensex rising over 2,000 points in intraday trade. The market rally was driven by gains in Auto, Banking, and Financial stocks after significant announcements made by the FM Nirmala Sitharaman. Let's see what were these announcements led to such a rise in the stock market.

1.  No introduction of any new tax: Before the budget, most investors were worried about the introduction of a COVID Cess and an enhanced surcharge on Income Tax. But no such tax was introduced and this appealed most to the market. Positive sentiments flowed when there was no such news of wealth tax or increase in LTCG on equity investments.

2.  Recapitalisation and Divestment plan for PSBs: FM announced strategic divestment in one general insurance company and two public sector banks in the next fiscal year. She added that the legislation required for disinvestment in the Public Sector Banks will be brought in the ongoing budget session of the parliament. However, the names of the PSBs were not revealed. Further, capital infusion of Rs. 20,000 crore for state-owned banks will be done, she said. 

3. Scrappage Policy: FM quoted that under the voluntary vehicle scrapping policy, commercial vehicles would need to undergo a fitness test after completing 15 years whereas personal vehicles would need to take it after completing 20 years. She further added that this will in turn promote environment-friendly and fuel-efficient vehicles while assisting the government to slash India’s huge import bills. 

4. LIC Initial Public Offer (IPO): FM quoted in her budget that the insurance behemoth LIC will go for an IPO in 2021-22. The much-awaited IPO is likely to be the largest such issue for the Indian markets. The government which has seen liquidity dry out from the market due to the covid pandemic may conduct the IPO in tranches, selling a total stake of 25%.

5. Hike in FDI limit in Insurance: The budget proposed to increase the FDI limit in insurance to 74% which is currently at 49%. FM also proposed to allow foreign control and ownership with certain terms and conditions. An amendment in the Insurance Act was proposed to implement the same. 

#Opinion 

The budget was focused on economic growth by raising expenditure and allowing for a wider fiscal deficit during these difficult times. Besides the widely expected allocation increase to Infrastructure, Housing, Textiles, and Health sectors, the firm mindset shown to privatize PSB's and certain PSU's, the move to curb prolonged tax scrutiny, and the creation of a certain Asset Reconstruction Company for managing bad loans are all steps in the right direction.