Will Guv bring the added magic now--markets celebrate in assumption

The BSE Sensex and Nifty post a single day rally of 800 and 240 points to surge past the key 7,200 mark on Tuesday. One of the main reasons for the surge today is expectation of reduction in repo rate after Monday's union budget from the Reserve Bank Governor Raghuram Rajan. The governor had last cut interest rate in September.

Sentiment got a boost as Finance Minister Arun Jaitley in his Union Budget on Monday stuck to the government’s fiscal deficit target of 3.5 per cent for the forthcoming financial year despite increasing expenditure for rural and infrastructure spending. This would reduce governments its net borrowing program from Rs 4.8 lakh crore in FY16 to Rs 4.25 lakh crore in FY17.

A high fiscal deficit puts upward pressure on interest rates as the government in order to borrow more runs the risk of crowding out the private borrower. A bulging fiscal deficit can push inflation in the economy higher and thus restrict the central bank's ability to cut rates to support growth. 

Further support also came in with statement of government that investment limit for foreign entities in Indian stock exchanges will be enhanced from 5 per cent to 15 per cent on par with domestic institutions. The move will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices. Monday's Budget has also led to the clamour for a bigger rate cut in the coming months. 

The rupee rallied for the third straight day, rising to 67.96 per dollar on Tuesday, while bond yields continued to inch lower. 

In the 50-share index, ITC, Maruti Suzuki, ICICI Bank, Vedanta and Hero MotoCorp gained between 6.20 per cent and 10.40 per cent. On the other hand, ONGC, HUL and Dr Reddy’s Labs slid between 0.37 per cent and 1.14 per cent.

Sectorwise, the BSE FMCG index surged the most — 4.90 per cent, followed by BSE Consumer Durables index (up 4.37 per cent), BSE Realty index (up 4.21 per cent), BSE Auto index (up 4.19 per cent) and BSE IT index (up 3.72 per cent). Rest all other sectoral indices on BSE also closed in green.