Markets rise for second straight day on cut in corporate taxes
EARNINGS GROWTH In the last two trading sessions, the Sensex has risen 8.3%, or 2,997 points
SINGAPORE/MUMBAI: Indian stocks rose for a second day on expectations that the government’s surprise $20 billion company tax cut will revive economic growth and boost company earnings.
The S&P BSE Sensex jumped 2.8%, or 1,075.41 points, to close at 39,909.03, while the NSE Nifty 50 Index advanced 2.9%, or 326 points, to close at a two-month high of 11,600.20 points. Both gauges surged 5.3% on Friday, marking their biggest gain since May 2009, after the corporate tax rate was lowered to 22% from 30%.
In the two-day rally, Sensex posted its biggest two-day gains of 2,996.56 points or 8.30%, while the 50-share Nifty soared 895.40 points or 8.36%.
Analysts increased earnings estimates for both measures by as much as 10% to factor in the lower tax burden.
The government’s move follows a series of other measures unveiled over the past month aimed at boosting consumer demand and attracting investment.
The tax cuts have “significant positive implications for corporates’ profitability, broader economy and market valuations,” Nomura Holdings Inc. strategists including Saion Mukherjee wrote in a note. “We expect the strong monetary stimulus in the near-term to result in a cyclical recovery followed by investment/exports-led growth in the medium term.”
The reduction has l ed t o “earnings upgrades, hence we believe that Nifty, Sensex are set for a higher trajectory, and a rally up to 12,500 and 42,000 respectively is likely in the next 3-6 months,” Stewart & Mackertich Wealth Management Ltd. analysts including Sarthak Mukherjee wrote in a note on Friday. Foreign investors will probably shift their negative stance on Indian equities, he said.
Thirteen of 19 sector sub-indexes compiled by BSE Ltd. rose, led by gains of more than 5% in gauges of capital goods, financial and industrial stocks.
Sixteen of the 31 Sensex members and 32 of the 50 Nifty companies advanced.
Bajaj Finance Ltd. was the top gainer after surging as much as 9.8% to a record high.
Technology stocks including Infosys Ltd. were among the top decliners.
Brokers said that the trading at the National Stock Exchange was marred by some glitch mainly in the closing session for 10 minutes.
Brokers suffered disruption from 3.15pm to 3.29pm.
“Markets for the second day in a row, after the historic decision to cut corporate tax, witnessed a stellar rally. A lot of buoyancy has come from the fact that these measures will boost the profitability of a number of companies, which will either be used to stimulate demand by lowering prices, payouts to shareholders in the form of dividends or using it for capital expenditure,” Devang Mehta, head - equity advisory, Centrum Wealth Management said.
Top gainers in the Sensex pack included Bajaj Finance, Larsen and Toubro, Asian Paints, ITC, Axis Bank, Kotak Bank, ICICI Bank, HDFC twins, Maruti and State Bank of India, rallying up to 8.70%.
Broader BSE Midcap and Smallcap indices rallied 3.08% and 2.73% respectively.
Sectorally, BSE capital goods index, bankex, industrials, finance, consumer goods, oil and gas, consumer durables and realty indices surged up to 6.55%.
While BSE IT, teck, telecom, utilities and power indices closed down by up to 3.29%.
Vinod Nair, head of research at Geojit Financial Services commented: “Rally continued as the positive sentiment for revival in earnings growth attracted investors to the market. Banks outperformed while mid and small cap witnessed strong bargain buying in expectation of turnaround in consumption story and improvement in the balance sheet.”
Announcing a ₹1.45 lakh crore fiscal stimulus to jump-start flagging growth, the finance minister on Friday slashed the base corporate tax for existing companies to 22% from 30%; and for new manufacturing firms, incorporated after October 1, 2019, to 15% from 25%.
Further, the GST Council slashed the same on hotel tariffs and some goods with a view to addressing sectoral concerns in a slowing economy.
“The 10% tax reset has witnessed frantic buying across high tax-paying entities in the l ast t wo t r ading s essi ons. The rebalancing act has led to selling in IT (information technology) and pharmaceuticals with a shift towards manufacturing and private banks and select FMCG (fast-moving consumer goods) stocks,” S Ranganathan, head of research at LKP Securities said.
Meanwhile, the rupee was trading flat at 70.92 against US dollar.
Brent crude futures fell 0.79% to $63.77 per barrel (intraday).
THE TAX CUTS HAVE SIGNIFICANT POSITIVE IMPLICATIONS FOR FIRMS’ PROFITABILITY, BROADER ECONOMY, MARKET VALUATIONS