In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer
A firework display. (Photographer: Yuri Gripas/Bloomberg) 

In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer

Investors turned $96 billion richer in a day as India’s equity benchmarks jumped the most in more than a decade on surprise cuts in corporate tax to revive growth.

The S&P BSE Sensex closed the day 5.32 percent, or 1,921 points, higher at 38,014.62. The NSE Nifty 50 Index ended 5.32 percent higher at 11,274.20.

In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer

The benchmark indices wiped out the losses logged so far during the year on today’s gain. The 31-share index surged 5.4 percent and the 50-stock gauge rallied 3.79 percent year-to-date. During the week, they advanced 1.7 percent and 1.79 percent, respectively.

The government’s tax relief proposal is among its measures to revive the economy. The nation’s gross domestic product growth fell to a six-year low owing to a fall in investments and consumption.

The changes announced today will affect corporate profitability in India, said Basant Maheshwari, partner and co-founder at Basant Maheshwari Wealth Advisers LLP. “It’s a huge change and there would be companies benefiting up to 15 percent. But ultimately, the benefit would come to those companies that show earnings growth for the next few years,” he told BloombergQuint.

But Maheshwari advised that investors should choose their stocks carefully even as the entire market is gaining right now. “You have to buy companies that are going to make profits for the next several years. If you buy junk right now, those companies won’t make profits and neither would the investors.”

Domestic investors funnelled in Rs 3001.32 crore today into the markets, NSE data showed. The provisional data for foreign portfolio investors’ showed that the overseas investors infused Rs 35.78 crore. The NSE recorded equity turnover of Rs 82,322 crore today compared with nearly Rs 30,000-crore average till Thursday.

Also read: Corporate Tax Rate Cut To Restore India’s Earnings Growth, Say Market Experts

The Nifty 50 and the Nifty Bank Index, which started trading below their 20-day moving average in the day, is now above their 200-day moving average—a key resistance level in technical analysis.

In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer
In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer

“Overall, we can see Nifty earnings going up by about 5-6 percent in FY20 as the effective tax rate was already lower at 26 percent,” Rusmik Oza, senior vice-president (head of fundamental research) at Kotak Securities. “Add the sentiment booster angle and the way this will be taken positively by FIIs and local investors we can expect the Nifty to rally by 9-10 percent from today’s low of about 10,700. Hence, 11,500-11,600 is very much possible on the Nifty without considering any other factor.”

Here’s how the markets moved after the unexpected tax cut announcements...

What Moved The Indices

The Nifty’s rally was led by the gains in Reliance Industries Ltd., HDFC Bank Ltd., ICICI Bank Ltd. and Larsen & Toubro Ltd.

In percentage terms, Eicher Motors Ltd., Hero MotoCorp Ltd. and IndusInd Bank Ltd. were the top performers.

Also read: Finance Minister Gifts Mid-Year Tax Bonanza To India Inc.

The market breadth was firmly tilted in favour of buyers as 1,330 stocks advanced and 489 declined on the National Stock Exchange.

Also read: These Companies Stand To Gain From The Buyback Tax Relief

Best And Worst Sectoral Performers

Ten of the 11 sectoral gauges compiled by the NSE ended higher, led by the NSE Nifty Auto Index’s 9.9 percent surge—the biggest jump on record. The NSE Nifty IT Index was the only loser. Other banking and financial indices, too, rallied.

Besides, the NSE Nifty Bank Index clocked its best single-day gain in absolute terms.

In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer

How Broader Market Performed

The broader markets represented by the NSE Nifty 500 Index gained 5.3 percent, led by the rally in Edelweiss Financial Services Ltd. and Ashok Leyland Ltd.

In the mid-cap space, the NSE Nifty Midcap 100 rallied nearly 6 percent, led by gains in Edelweiss Financial Services Ltd. and Bombay Burmah Ltd.

In the small-cap space, the NSE Nifty NSE Nifty SmallCap 100 advanced nearly 4 percent, led by the rally in NCC Ltd. and Chambal Fertilisers and Chemicals Ltd.

Also read: Domestic Investors Will Continue To Pay Enhanced Surcharge On Derivatives

How Money Market Performed

The Indian rupee, too, pared its weekly losses. The domestic currency rallied 0.5 percent to end the day at 70.94 against the U.S.

Bond markets, however, reacted negatively to the news. The benchmark 10-year bond yield surged 15 basis points to 6.79 percent in the hour after the announcement. At close, the yields stood at 2.27 percent.

In Charts: Surprise Corporate Tax Rate Cut Makes Investors $96-Billion Richer
BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.