Markets Soar in Relief After FM Spares Tax Hit Govt sticks to fiscal prudence and decides not to rejig capital gains tax regime
The Sensex and Nifty appear to have made a habit out of sharp Budget day rallies. For the second year in a row, shares rallied on Wednesday after the government stuck to its fiscal road map and made no changes to the long-ter m capital gains tax structure. Bulls were spurred into action and propelled the indices to levels not seen since October.
The relief granted by finance minister Arun Jaitley to foreign investors on indirect transfer taxes also helped. Investors were worried that the government may change the capital gains structure and not provide relief to foreign investors on the indirect tax issue. The Budget did not increase the period for short-term capital gains tax to two years as feared, but Jaitley specifically exempted foreign portfolio investors from any indirect transfer tax obligation.
“The market rejoiced because there was no change in capital gains structure and the government stuck to fiscal consolidation road map,” said Gautam Chhaochharia, head of India research at UBS. Benchmark indices jumped 1.8% to their highest level in three months. The Sensex surged nearly 486 points to close at 28,141.64 and the Nifty gained 155 points to 8,716.40. Both indices closed at their highest levels since October 25. Bank Nifty rose 2.6%.
Last year, a similar commitment to the fiscal deficit tar- get of 3.5% for 2016-17 helped pull indices from an over-200point slump on Budget day on February 28. Though shares ended lower on that day, the boost to sentiment from fiscal prudence was such that the Sensex climbed 751 points, or 11%, in March. On Wednesday, the government fixed the fiscal deficit target for 2017-18 at 3.2% of GDP versus expectations of 3%, but investors were not worried.
Domestic institutions, including mutual funds and insurers, were big buyers, purchasing s t o c k s wor t h ₹ 1,133.70 crore. Foreign portfolio investors bought s h a r e s wor t h ₹ 92.7 crore. The India Volatility Index s lu mp e d 17% to 13.97, its biggest single-day fall since May 2014, suggesting traders see limited risks in the near term. The market was also heartened that the government deviated only marginally from the earlier fiscal deficit target of 3% for 2017-18.
Analysts said the market’s direction now hinges a lot on what happens in the US — in terms of the rate trajectory Federal Reserve takes and President Donald Trump’s policies. By the time you read this, the Fed would have ended its two-day policy meeting. “The focus will be back to other relevant issues such as earnings, Uttar Pradesh elections and how US policy framework shapes up,” said UBS’ Chhaochharia.
Domestic institutions and insurers purchased stocks worth
1,133 cr on Wednesday