Sensex hits 50,000! Six key risks that could play spoilsport for the D-Street bulls

Market Outlook

The Indian market, which rose about 15 percent in 2020, is well in control of the bulls. The positive momentum has carried on to the new year as benchmark indices are at fresh record highs in the run-up to Budget 2021.

The S&P BSE Sensex climbed Mount 50K while the Nifty50 also hit a fresh high above 14,600 for the first time.

Tracking the momentum, the market capitalisation crossed Rs 197.70 lakh crore on Wednesday. At Rs 73.03 per USD, Indian market capitalization has now topped USD 2.7 trillion for the first time ever.

Given the recent euphoria in the market, especially ahead of the key event i.e, Budget 2021, experts advise caution. Much of the rally is supported by global liquidity which is closer to Rs 20,000 crore (as on January 20) in the cash segment of the Indian equity markets so far in January.

The run-up to the Budget has been phenomenal but there is a possibility that the market might be over-optimistic regarding the announcements. This comes after the Finance Minister said that the budget shall be unlike anything in the past 100 years.

“There is indeed a lot of positivity on the street as Budget 2021 is expected to come up with a good amount of aid and relief. Investors are expecting good stimulating provisions which are necessary for the economic recovery and growth which is now quite fragile,” Rohit Gadia, CIO at CapitalVia Global Research Limited told Moneycontrol.

“The statement of Finance minister that this budget shall be unlike anything in the past 100 years has also triggered optimism. The current rally in markets can be added to Budget 2021 along with the January effect where the FIIs are quite active after their holiday season,” he said.

What could derail the rally?

If the FM fails to meet the hype there could be some knee-jerk reaction. A higher fiscal deficit number could also put brakes on the bull run but might not be able to stop it if liquidity continues, suggest experts.

The market is already trading at stretched valuations and any news about the rise in COVID cases or extended lockdowns across the globe could hit sentiment. On the global front, if central bankers put a pause at additional stimulus measures or loose monetary policy could dampen foreign flows.

“It is best to go into the budget without any unrealistic expectations or best is to keep expectations low and like previous years, the announcement on reforms front could well come outside of the budget in the normal course of business,” said Narendra Solanki, Head- Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers

“As far as markets pricing in good news or being over-optimistic, we think markets are pricing in earnings recovery and successful rollout of vaccination drive more. Any disappointment from Budget could have a short knee-jerk reaction at best,” he said.

Deepak Jasani, Head of Retail Research, HDFC Securities lists out 6 crucial risks that could weigh on D-Street –


Post Q3 results, the street realises that the stocks and the market are overvalued based on fresh forecasts of earnings.

Budget Disappoints:

Budget disappoints in terms of levy of fresh taxes/surcharges, fiscal indiscipline, possibilities of interest rates rising sharply as well as other expectations not being met.

If markets do not correct sufficiently before the Budget, then they would do that post the Budget irrespective of what happens. Only if the Budget is path-breaking in terms of policies (Govt spending, divestment, revenue-raising, or capital market-friendly) this up move can sustain beyond a point.

Central Banks raise rates:

Globally, interest rates continue to rise and central banks start getting concerned if inflation is also rising in tandem. The end of the easy money policy might be around the corner.

Increase in US Taxes:

President Joe Biden makes noise about increasing taxes on US corporates/HNIs, increasing regulations on technology companies, and taking steps that could impact profits of the Pharma industry.


Covid pandemic does not come under control and lockdowns become more frequent across the globe.

Strong USD:

US dollar continues to appreciate, reducing the lure of emerging markets.

Sectors to watch:

The bull run in Sensex and Nifty could be volatile but stock-specific action is likely to continue. Investors should try and increase their portfolio weight in sectors that are likely to benefit from Budget 2021.

“While Direct and indirect taxes may not offer much scope to innovate or bring path-breaking reforms (except those related to capital markets), the main focus could be on boosting manufacturing through schemes like PLI and create jobs,” says Jasani of HDFC Securities.

“Defence, Health infrastructure as themes could remain in focus. Spending by Consumer and Capex spending both could be given a boost to kickstart quick recovery,” he said.

Atul Bhole, SVP – Investments, DSP Investment Managers told Moneycontrol that sectors such as housing finance companies, real estate companies, consumer discretionary companies related to home improvement space, among others could be in focus ahead of Budget.

He further added that it is not only because of budget expectations but green shoots can be seen around real estate volumes. Real estate, being the largest employment generator -directly and indirectly, can be on the focus list of Government.

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