Indian equity benchmarks clocked their biggest intraday gains in a decade as the government lowered corporate tax rate to spur growth and trigger jobs.
The S&P BSE Sensex surged 1,921.15 points to 38,014.62 and the NSE Nifty 50 jumped 569.40 points close at 11,274.20. The broader markets represented by the NSE Nifty 500 Index surged 5.29%. The move has created an investor wealth of around $96bn.
The cut in tax rate announced by the Finance Minister Nirmala Sitharaman could lead to more foreign investors and industries to come in the Indian market, KR Choksey Investment Managers’ Managing Director Deven Choksey said.
The Nifty is expected to reach 12,000 by Diwali as ‘fear’ turns to ‘greed’, according to Sanjiv Bhasin, executive vice president, IIFL Securities. The market breadth was firmly tilted in favour of buyers.
About 1,330 stocks advanced and 489 shares declined on National Stock Exchange. Ten out of 11 sectoral gauges compiled by NSE traded higher. The NSE Nifty Auto Index jumped 9.9%— its highest jump since May 2009. The NSE Nifty IT Index was the only sectoral loser, down 0.20%.
The BSE Midcap index rose 5.41%, while the BSE Smallcap index jumped 3.32%. The BSE 500 index was also up 4.91%.
Among BSE 500 stocks, 11 stocks gained over 10% intra-day. Among gainers, Ashok Leyland, ABN India Ltd, Eicher Motors Ltd, Blue Star Ltd, Thermax Ltd, Varroc Engineering Ltd, RBL Bank Ltd, Havells India Ltd, Page Industries Ltd, Jamna Auto Industries Ltd and Maruti Suzuki India Ltd jumped 10-14% intra-day yesterday. Among BSE 500 stocks, 39 were down.
These stocks include PTC India Ltd, Coffee Day Enterprises Ltd, Zee Entertainment Enterprises Ltd and Dish TV India Ltd among others.
Meanwhile, rupee also surged yesterday. The currency gained 0.5% to 70.97 a dollar, while benchmark Sensex Index rose 4%, or 1445.53 points, to 37,539.
In the year so far, the rupee has weakened 2.2%, while foreign investors have bought nearly $6.46bn in Indian equities and $4.31bn in debt.
The yield on the 10-year government bond surged as much as 22 basis points, its biggest jump in 31 months, due to concern of higher fiscal slippage after finance minister Nirmala Sitharaman announced a cut in corporate tax rates for domestic companies.
The 10-year bond yield rose 23 basis points, the maximum gains since 8 February 2017, to 6.849% from its previous close of 6.638%. Bond yield and prices moves in opposite directions. “Tax cut will negatively impact the bond market as the revenue forgone due to the tax rate reduction will make it difficult to stick to the GDP budgeted target”, said Suvodeep Rakshit, senior economist, Kotak Institutional Equities.
Fiscal deficit likely to surge at least 70 basis points to 4% of GDP in 2019-20 as a result of cut in corporate tax cut. Sitharaman said the government was aware of the consequences of the revenue hit due to the measures announced today. The finance minister said the revenue loss to the exchequer will be Rs1.45tn in 2019-20. In the Union Budget presented in July, Sitharaman had slashed fiscal deficit target to 3.3% of GDP from 3.4% estimated in the interim budget presented in February.
India will cut corporate tax rate for domestic businesses to 25.17%, including surcharges, and will be applicable to companies not availing incentives. The current corporate tax rate is 30%.
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