Indian stocks markets extended the Friday’s rally today by moving sharply higher in early trade. The Sensex rose 1100 points to 39,153 while Nifty reclaimed 11,500. On Friday, the government slashed corporate tax rates in a surprise move designed to woo manufacturers and revive private investment and lift growth from a six-year low. The move will cost the government ₹1.45 lakh crore in the current fiscal year in terms of lost revenue.
Here are 10 updates from Indian stocks markets:
1) Among the Sensex stocks, ITC, L&T, IndusInd Bank, Asian Paints and M&M rose between 5% and 7%.
2) Many brokerages have raised their earnings estimates for India Inc and Sensex and Nifty target after the corporate tax cut. The cut in the corporate tax rate could increase earnings of companies Citigroup’s coverage by as much as 8-9% from FY20, the financial institution said, raising its March 2020 Sensex target to 40,500 from 39,000.
3) Analysts will be closely watching how foreign institutional investors will take the tax rate cut.”It is important to see when FPIs will resume their buying spree and how they are taking the tax rate cut,” says Jimeet Modi, founder and CEO of SAMCO Securities. On Friday, FPIs had bought Indian equities of just ₹30 crore (net) while domestic investors had poured in over ₹3,000 crore.
4) Some market analysts expects Indian markets to head higher further. “A variety of technical indicators indicate that markets could be attempting a retracing back to higher levels. Of course, the result season starts soon but many sectors are oversold so unlikely that we may weaken if earnings disappoint,” says Vikram Kasat, head of advisory at Prabhudas Lilladher.
5) Moody’s Investors Service has however warned about fiscal concerns after the sharp cut in corporate tax rate. “The move is credit positive for companies because it will enable them to generate higher post-tax incomes. However, it is credit negative for the sovereign, as it aggravates mounting risks for the government in meeting its fiscal deficit target,” the agency said.
6) The government will not revise its fiscal deficit target immediately and is not planning any spending cuts at this stage, Finance Minister Nirmala Sitharaman said on Sunday, after slashing corporate tax rates to boost a flagging economy.
7) Though equity markets welcomed the move, bond yields spiked on speculation the government may have to borrow more to meet its spending needs.
8) Kotak Institutional Equities expects net profits of the Nifty-50 Index to grow 25% for FY2020 versus 15% earlier buoyed by the sharp cut in corporate tax rate. “This assumes that companies will retain the bulk of the tax cuts; in reality, some of them will pass on some benefits to consumers,” it added.
9) Automobiles, banks, capital goods, consumer staples, diversified financials and oil, gas and consumable fuels will be key beneficiaries of the sharp cut in corporate tax rate while electric utilities, IT and pharmaceuticals will see little or no impact, Kotak Institutional Equities said.
10) Other measures announced on Friday including that the enhanced tax surcharge introduced in July 2019 shall not apply to Capital Gains on sale of equity share which is subject to STT (Securities Transactions Tax) would go a big way in restoring confidence in the Indian equity markets, says Shibani Kurian, head of equity research at Kotak Mahindra Asset Management Company.
