Mumbai: Indian equities rallied to a five-week high of 16,772.56 points on Tuesday, rising, in what is the best two-day post-budget rally since 2004, by close to 3% since Friday, when the Union Budget was announced.

Graphics: Ahmed Raza Khan/Mint

Still, analysts and fund managers said the gain in Indian shares was part of a broader equity bounce back around the world as the economic outlook became sunnier with manufacturing output growing robustly. “Whatever the Budget could have done, it has done," said Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership Llp, a foreign institutional investor. “The Budget was more or less digested Friday night. Now, the markets will look towards international cues."

Mobius, who manages $34 billion (around Rs1.6 trillion) at Templeton Asset Management Ltd, said that the government has done a good job of managing the economy during the recent crisis and that with most Indian companies showing strong cash flows and healthy balance sheets, Indian shares could gain faster.

On Tuesday, the Sensex closed 343 points or 2.09% up at 16,772.56. The broader 50-stock Nifty rose 1.92% to close at 5,017. But Indian indices haven’t been alone in their surge. China’s Shanghai Composite index has bounced 3% up from its lows of last week, while the UK’s FTSE100 showed a 3.35% gain at the end of Monday’s trading.

Economic data around the world is reinforcing hopes of a global recovery. For instance, Japan’s January unemployment rate was less than what was expected, while South Korean exports increased 30% in February from the year-ago period.

India’s exports in January rose 11.5% over a year ago, the third straight monthly increase. The HSBC Markit Purchasing Managers Index rose to 58.5 in February, the most in a year and a half, indicating a faster increase in new orders, output and employment.

“The global scenario is easing off," said Andrew Holland, head of equities at Ambit Holdings Pvt. Ltd. “In India, the domestic consumption is well known and the Budget has accelerated that."

Gopal Agarwal, head of equity at Mirae Asset Global Investments (India) Pvt. Ltd, echoed that sentiment.

“We are seeing a global recovery," said Agarwal, who part-manages Rs264 crore of assets at Mirae. “The risk perception among investors is decreasing."

Auto stocks continued their good run on Tuesday with the BSE Auto index rising 4.29% to close at 7,478.81. While this rally was part of the broader market run, analysts said limiting the excise tax hike to 2%, the increase in disposable income and good February sales helped boost investor demand for these stocks.

Metal stocks rose 3.92% too after some reports suggested that Saturday’s earthquake in Chile might affect the supply of copper, increasing prices of the metal

The third largest rise was registered by Bankex, BSE’s banking index, 2.29%. Banks are proxy for economy and the finance minister’s emphasis on growth and fiscal consolidation is fuelling the rally in this sector, analysts said.

The consensus outlook for the Sensex and Nifty for the end of the year remained largely unchanged with most brokerages saying that the Budget was a one-off event and that they preferred to wait for larger developments such as company earnings and the progress of the next monsoon, on which the bulk of India’s largely agrarian population depends.

“We have an overwhelmingly positive outlook, and believe that consumption plays such as autos, metals, paints, and private sector banks—as well as infrastructure and software will perform well during the year," said Abhay Laijawalla, head of Deutsche Bank AG’s India equity strategy team in an emailed statement.

He forecast the Sensex would reach a level of 22,000 by the end of the year.

“The next leg of market re-rating could occur when the investment cycle makes a decisive comeback. Examples include further evidence of strong demand; government intent on developing national infrastructure; higher corporate capex plans; and rising capacity utilization levels," he said.

Ashwin Ramarathinam of Mint and Bloomberg contributed to this story.