All eyes on the Index... India's stocks have been surging even amidst all the concerns over a pandemic infected economy. Will this run continue? Image Credit: AP

Mumbai: If history is a guide, the recent rough ride for Indian stocks will likely continue after Monday's budget.

The benchmark S&P BSE Sensex has climbed in the month following the budget day in only two of the past seven years since Prime Minister Narendra Modi came to power, while falling or staying rangebound on other occasions. Risks are compounded in 2021 given stretched valuations.

"There are expectations that the government will keep aside fiscal prudence and open its pockets to spend more," said Ajit Mishra, vice-president of research at Religare Broking Ltd. "Investors and businesses are pinning high hopes on the budget and any disappointment could lead to profit-taking."

A bit of retreat

The Sensex began 2021 on a strong footing after a blistering 25 per cent advance last quarter - thanks to record inflows from foreign investors - even as data showed that India's economy had plunged into recession. But there are signs the rally is petering out: the index slid 5.3 per cent last week, the most since early May.

"Valuations are correcting from all-time high levels for most sectors," said Dhiraj Relli, CEO of Mumbai-based HDFC Securities Ltd. "We don't expect significant upside."