The Sensex and Nifty are on a roll and it seems there's no pause likely to the rally. The indices have come a long way during the last two years amid flow of positive news on macroeconomic front, FDI inflows and policy measures by the Narendra Modi government.
On February 11 2016, the Sensex stood at 22,951. Since then, it has gained nearly 13,000 points, translating into a gain of 56%.
The Nifty has gained nearly 4,000 points or 57% from 6,976 since 11 February 2016.
The indices which have logged record gains this year will face Narendra Modi government's last full year Budget on February 1.
FULL COVERAGE: UNION BUDGET 2018
Experts say there is abundant liquidity in the market amid limited availability of stocks which may lead to a correction in key benchmark indices in the near future.
Alok Ranjan, head of Research at Way2Wealth Brokers said, "With crude prices having rallied more than 50% over past six months and inflation above RBI's comfort level, India's macro-economic parameters have worsened a bit. On the other side however, recently declared corporate earnings are better than expectations. Private sector capex has started gaining momentum and the recapitalization of PSU banks will boost the credit offtake. Driven by easy flow of liquidity, valuations are quite rich."
The Union Budget which is expected to unveil steps to boost agriculture and announce farmer centric measures is not likely to lift the market on a large scale since market valuations are quite rich.
"With implementation of GST, significance of budget has further reduced as tinkering with indirect taxation has mostly gone of the ambit of budget. I expect markets to be quite volatile on budget day and stocks related to consumption, agri, rural and infra sector may do well," added Ranjan.
Last year, the Sensex rose 486 points higher to close at three-month high of 28,142 level after FM Arun Jaitley presented Union Budget on February 1. Financial and realty stocks powered the show. Markets welcomed the budgetary proposals of infusing Rs 10,000 crore in public sector banks and keeping long-term (LTCG) and short-term capital gains tax (STCG) unchanged for the capital market.
But this year, the market movement could be quite different.
"The bullish tone of the market may continue even after the budget though an intermittent profit booking in few pockets with extreme valuation cannot be ruled out. My advice to investors would be to focus on specific stocks where underlying fundamentals are strong," said Ranjan.
Sensex, Nifty may also take cues from global markets on February 1 if the Budget does not deliver positive news similar to last year.
Deepak Jasani, head, retail research at HDFC Securities said, "Having regard to the present valuations and the fact that markets have not corrected ahead of the Budget, possibility of a large rise post the Budget seems less likely. If markets are disappointed with the Budget we could see some correction which may get extended provided the global markets are also in correction mood."
The market may swing either side but it would be interesting to see stocks falling to their real valuations if the rally fizzles out post absence of positive news in Union Budget on February 1.