Mumbai: Indian equity markets surged for the second session on Friday on expectations of rollback of higher surcharge on foreign investors. Measures announced by the Reserve Bank of India (RBI) to ease liquidity squeeze in non-banking finance companies also boosted sentiment.
At 10.40 am, the benchmark Sensex index rose 0.88% or 327.46 points to 37,654.82, while Nifty gained 0.93% or 102.45 points to 11,134.90 points. So far this year, Sensex and Nifty have risen 4% and 2%, respectively.
Finance minister Nirmala Sitharaman will meet financial sector representatives on Friday as she seeks to put together a package that will boost investor sentiment and arrest an economic downturn.
The meeting, to be attended by key finance ministry representatives including tax officials, indicated the government is open to reviewing an unintended tax burden on them proposed in the union budget presented on 5 July after having steadfastly rejected their pleas for a review earlier. The increase in surcharge on the income tax outgo of certain classes of taxpayers earning above specified limits hit certain FPIs organised as trusts.
The move triggered massive selling in the stock market, wiping out nearly ₹14 lakh crore in market valuation. Foreign investors have net sold $3.16 billion of local stocks so far in the quarter through 7 August, data compiled by Bloomberg show.
On Wednesday, the RBI said it is committed to ensuring that sufficient liquidity is available so that the needs of all productive sectors of the economy are met. Towards this objective, the RBI will use its liquidity management instruments “to ensure that the system’s requirements of both day-to-day liquidity and durable liquidity are adequately provided", the central bank said in its policy statement.
The RBI said it has already injected a substantial amount of liquidity into the system through a combination of instruments -- including through liquidity adjustment facility, open market operations and forex swaps. There is an abundance of liquidity in the system currently, warranting absorptions of surpluses by RBI. Surplus liquidity parked in the reverse repo window of the RBI was almost ₹2.0 lakh crore on 6 August, it added.
"The MPC’s verdict of fourth straight rate cut was on anticipated lines but the little extra i.e. 35 bps was a pleasant surprise, as this would aid in addressing incumbent growth concerns by way of boosting aggregate demand and private investment. The Governor has also reaffirmed the importance of large NBFC’s in the system and has reassured to render the requisite support as required, which will be the key for rejuvenating the slowing economy. The focus of the Central Bank on spurring growth and addressing the NBFC issue will provide the much needed respite to the markets,“ said Jyoti Vaswani, chief investment officer, Future Generali Life Insurance.
Investors will now await Index of Industrial Production data on Friday and Consumer Price Index-based inflation data on Monday. According to Bloomberg analyst estimates, IIP is seen at 1.4% in June from 3.1% in May. CPI is likely to be at 3.13% in July versus 3.18% a month ago.