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Aniruddha Chowdhury/Mint
Aniruddha Chowdhury/Mint

Indian equities higher on investor optimism following steps to boost economy

  • Indian equities on Monday surged
  • Government on Friday rolled back some of the measures introduced in the budget

Indian equities on Monday surged as the Centre announced removal of enhanced surcharge on foreign investors and unveiled a series of measures to boost economic growth.

At open, the benchmark Sensex had risen 1.8% or 662.79 points to 37662.79, while the Nifty rose 2.41% to 11000.55 points. But indices pared gains as investors turned cautious after US-China trade tensions worsened. On Friday, President Donald Trump said he will raise tariffs on Chinese imports in response to Beijing’s retaliation.

At 9.26 am, the Sensex was at 36956.41, up 0.7%, while the Nifty was up 0.81% at 10915.40.

Government on Friday rolled back some of the controversial measures introduced in the budget, including the enhanced surcharge levied on foreign institutional investors. Finance minister Nirmala Sitharaman also announced steps to stoke demand, including a rejig of the government’s spending programme by front-loading it, addressing supply-side bottlenecks and easing bank credit rules, even as she promised to end “tax terrorism" that has left India Inc. jittery.

“The measures announced by the Centre should help address some of the constraints to growth, by boosting sentiment, addressing liquidity issues in some sectors, improving ease of doing business as well as aiding monetary transmission. Funds allocated already in the Budget may be spent faster as well. Based on the pace at which implementation of these announcements takes place, we could expect a modest boost to growth in H2 FY2020", said Aditi Nayar principal economist of ICRA.

On 5 July, the government proposed raising surcharge on the super rich in Budget. However, the levy of surcharge also increased the tax burden on FPIs as most are organised as non-corporate entities such as trusts and association where taxation is similar to those for individuals.

The surcharge triggered massive selling in the stock market, wiping out nearly 14 trillion in market valuation. Foreigners have net sold over $3 billion of domestic equities so far in the quarter through 22 August, according to data compiled by Bloomberg.

"The main takeaway of today’s (Friday’s) announcements by the finance minister is that they are aimed at restoring confidence and tackling the challenges of weak demand. Measures that aim at accelerating the payment of dues of government to private sector entities, ensuring timely refund of GST refunds to MSMEs would in particularly help to resolve the liquidity crisis in the economy", said Garima Kapoor, economist at Elara Capital.

"Withdrawal of surcharge on FPIs and domestic investors would help in alleviating the tax burden on investors in capital markets. Likewise, quicker transmission of rate cuts, faster recapitalisation of banks and external benchmarking of rates are likely to aid credit off take. Most importantly, recognition of issues in the economy and the measures to address them is itself a positive signal and will help to ease concerns on growth slowdown," Kapoor said.

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