Bond yields — which move in the opposite direction to their price — continued to fall on Friday and closed at a seven-month low even as stocks leapt in response to finance minister Nirmala Sitharaman’s interim budget that placed its faith in fiscal prudence over vote-grabbing populism.
Yields on the benchmark 10-year security touched a day’s low of 7.02 per cent and later ended at a seven-month low of 7.05 per cent against the previous close of 7.06 per cent.
Rates on the 10-year paper fell 12 basis points from 7.17 per cent at the beginning of the week, the biggest decline since November 11, 2022.
With 2024 expected to be favourable to bonds given India’s inclusion in the JP Morgan Emerging Market Index and the Reserve Bank of India (RBI) beginning a shallow rate cut sometime in the second half, experts feel the yield could even slip to 6.80 per cent.
“The government has stuck to the path of fiscal prudence and it was a welcome surprise to see the revised estimates of fiscal deficit at 5.8 per cent of GDP and a glide path towards 5.1 per cent and 4.5 per cent over the next two years,’’ Aniruddha Naha, CIO – alternates, PGIM India Asset Management, said.
“Growth in tax assumptions are below 12 per cent, which is conservative and gives the government reasonable elbow room to continue its investment-oriented growth plans.’’
The fiscal discipline coupled with the lack of any bad news in the budget proposals had repercussions on the stock markets with the Sensex jumping more than 1444.1 points at one point in time to cross the 73000-mark at 73089.40.
Profit booking saw the benchmark index later settling with gains of 440.33 points at 72085.63.
On the NSE, the Nifty was up 156.35 points, or 0.72 per cent, to end at 21853.80.
Analysts said with one key event over, investors will focus on the monetary policy next week even as stock-specific action could be seen amid the ongoing results season.
A pre-election rally is also on the cards as the interim budget which did not contain any populist measures reflected the government’s confidence of again coming back to power.
Since the gains were confined to the benchmark indices alone, the market capitalisation of BSE-listed firms reached an all-time high. It rose Rs 3.34 lakh crore to reach a record of Rs 3.82 lakh crore. In the broader market, the BSE midcap gauge rose 0.80 per cent and smallcap index by 0.49 per cent.
While PowerGrid led the list of gainers in the Sensex pack, Reliance Industries saw brisk demand. The stock rose 2.18 per cent to settle at Rs 2,914.75 on the BSE.
Rate status quo
The RBI will hold its key interest rate steady at 6.50 per cent on February 8, according to economists polled by Reuters who expected the central bank to keep rates unchanged until at least July.