Mar­kets Soar in Re­lief Af­ter FM Spares Tax Hit Govt sticks to fis­cal pru­dence and de­cides not to re­jig cap­i­tal gains tax regime

The Economic Times - - Front Page - Sanam.Mir­chan­dani @ times­

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

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