Sensex hits record high as India cuts tax; FMCG gains
dubai — India’s key equity market index — the BSE Sensex — hit a fresh all-time high of 36,749.69 points on Monday before settling at 36,718.60 on the back of strong gains in banking and FMCG stocks after the Goods and Services Tax (GST) Council reduced rates on a number of products.
State and federal lawmakers cut goods and services taxes on more than 50 products, while the defeat of the opposition-led motion allayed concerns that Prime Minister Narendra Modi’s party may fall short of a full majority in next year’s federal poll. All but one sector sub-index compiled by BSE Ltd gained, led by a gauge of telecom companies. ITC Ltd gave the biggest boost to the benchmark index while shares in Wipro Ltd and HDFC Bank Ltd fell after their earnings reports.
The 30-share Sensex rose by 222.23 points or 0.61 per cent even as most of its Asian peers declined amid growing fears of trade and currency wars.
The BSE Sensex opened higher at 36,501.05 and gathered momentum on massive buying to hit an all-time intra-day high of 36,749.69 as FMCG major ITC, Hindustan Unilever and Asian Paints rallied.
Analysts said investor sentiment got a boost after the GST Council on Saturday cut rates on over 100 items, including footwear, refrigerator, washing machine and small screen TV, while exempting the widely demanded sanitary napkins from the levy. The revised tax rates will come into effect from July 27.
India’s interim Finance Minister Piyush Goyal said the revenue loss would be minimal.
The decision could result in a revenue loss that’s as high as one per cent of tax budgeted to accrue to the federal government, according to officials who didn’t wish to be identified as they aren’t authorised to speak to the media. Estimates said the loss would be as much as 150 billion rupees ($2.2 billion) each year and is raising the prospect of the country missing budget goals again this year.
Analysts said the estimated loss
in revenues comes at a time when India needs to keep its budget deficit in check as Modi prepares to ramp up spending on welfare programmes from health to farming before general elections next year. The government has already widened its deficit goal for the current fiscal year to 3.3 per cent of gross domestic product from three per cent, putting pressure on bond yields.
The broad-based NSE Nifty closed higher 74.55 points, or 0.68 per cent at 11,084.75, its highest closing since January 29 when it ended at 11,130.40. During intra-day, it moved between 11,093.40 and 11,010.95.
Foreign portfolio investors (FPIs) bought shares worth Rs3.1 billion, while domestic institutional investors offloaded shares worth Rs507.3 million on Friday, provisional data showed.
The new GST rates are effective from July 27 and the panel will meet again August 4 to discuss issues faced by small businesses.
India’s GST, billed as one of the biggest reforms of the Modi government, replaced a myriad of levies with a nationwide sales tax is just over one-year-old and the panel has already revised rates several times. The latest reduction comes before polls later this year in the states of Madhya Pradesh and Rajasthan. Tax cuts on the last few occasions came closer to the date of some state polls, lending strength to arguments it was done for electoral gains.
Modi needs resources to boost welfare spending before the federal election in 2019. Monthly GST receipts have picked up after teething troubles, but are still not strong enough to meet the government’s annual tax target of about Rs15 trillion.