Indian stocks markets today extended the Friday's rally by moving sharply higher. The Sensex rose as much as 1,426 points to 39,441 at day's high, adding to Friday's mammoth 1,921-point rally. The Nifty also rose to 11,694 at day's high today. 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. The Sensex settled 1075 points higher at 39,090 while Nifty settled at 11,603, up
Here are 10 updates from Indian stocks markets:
1) Banking, auto and FMCG stocks led the gains today. The Nifty Bank index rose 5.5% to reclaim the 30,000 level. Among the banking stocks, Axis Bank, Kotak Bank, IndusInd Bank and ICICI Bank gained between 6% and 7.5%.
2) The Nifty FMCG index rose 4.4% with gains led by ITC (+8%), Britannia (+7%) and HUL (+4%). The banks and the FMCG companies are immediate clear winners as they pay the highest tax, HDFC Securities said in a note.
3) Many brokerages have raised their earnings estimates for India Inc and Sensex and Nifty target after the corporate tax cut. Morgan Stanley has raised its earnings growth estimates for the BSE Sensex to 25% in FY2020, raising Sensex target to 45,000 by June-2020.
4) The BSE midcap and smallcap indices also participated in today's rally. The BSE midcap and smallcap indices rose nearly 3% each. Many analysts are betting on a rebound in midcap and smallcap stocks, citing valuation gap between largecap stocks and broader markets.
5) IT stocks saw some strong profit-taking after as analysts say that the benefit of the cut in corporate tax rate to 22% will be negligible or modest at best for IT companies in the current fiscal. Many IT services companies enjoy tax exemptions on revenues from special economic zones (SEZs). Infosys fell 5% while TCS 2.5% and HCL Tech 1.6%.
6) 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.
7) Analysts say higher corporate profits after the tax cuts will help boost investment and demand. "Lower taxes will improve the cash flow and profitability of corporate India. It will provide elbow room for higher investments which will boost demand in the economy. We don't expect corporates to share a benefits of lower taxes with consumers or employees," says domestic brokerage Prabhudas Lilladher.
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.