Indian markets cheer corporate tax cut announcement

Indian equity benchmarks cheered corporate tax cut announcement on Friday’s trading session, with the Sensex and the Nifty garnering huge gains of 5.32% each. Key indices made a flat start of the day, as the Organisation for Economic Co-operation and Development (OECD) slashed India’s gross domestic product (GDP) growth forecast by 1.3 percentage points to 5.9 per cent for 2019-20 from 7.2 per cent projected earlier. However, bourses soon gained traction, after the government cut corporate tax rate to 22% to revive investment. The government also decided to not levy enhanced surcharge introduced in Budget on capital gains arising from the sale of equity shares in a company liable for securities transaction tax (STT).

Equity benchmarks hold their strong gains till the end of the day, aided with Commerce minister Piyush Goyal’s statement that he hopes the tax relief measures announced by the government for the corporates will give the necessary fillip to growth that has been sputtering for long. Besides, Union Home Minister Amit Shah said the Modi government is committed in making India a big manufacturing hub and the slashing of corporate tax rates would make the country's markets much more exciting for potential investors. Some support also came with report that Reserve Bank governor Shaktikanta Das exuded confidence that second-quarter GDP numbers will be better than the previous one as the government has started spending again.

On the global front, European markets were trading in green, despite Turkey consumer confidence fell to the lowest level in four months in September. The figures from the Turkish Statistical Institute showed that the consumer confidence index fell to 55.8 in September from 58.3 in August. The latest confidence score was the lowest since May, when it was 55.3. Asian markets ended mostly in green, after Taiwan's central bank maintained its key interest rate for the thirteenth straight meeting. Policymakers unanimously decided to hold the benchmark rate at 1.375 percent. The bank upgraded its 2019 growth outlook to 2.4 percent from 2.06 percent estimated previously in June. The bank estimated 2.66 percent growth for the second half of the year.

Back home, the automobile industry stocks ended higher, as auto industry body Society of Indian Automobile Manufacturers (SIAM) said the reduction in corporate tax rate and other announcements made by Finance Minister Nirmala Sitharaman would help give boost to local manufacturing in the sector. The new tax rate will be applicable from the current fiscal, which began on April 1. Further, the banking sector stocks also gained, despite credit rating agency Moody’s said that the increasing liquidity stress among real estate developers would indirectly hit Indian banks and is thus credit negative for the domestic lenders.

Finally, the BSE Sensex gained 1921.15 points or 5.32% to 38,014.62, while the CNX Nifty was up by 569.40 points or 5.32% to 11,274.20.

The BSE Sensex touched a high and a low of 38,378.02 and 36,085.74, respectively and there were 26 stocks advancing against 05 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index rose 6.28%, while Small cap index was up by 3.94%.

The top gaining sectoral indices on the BSE were Auto up by 9.85%, Bankex up by 8.21%, Capital Goods up by 7.93%, Consumer Disc up by 7.56% and Consumer Durables up by 7.45%, while IT down by 1.09% and TECK down by 0.43% were the only losing indices on BSE.

The top gainers on the Sensex were Hero MotoCorp up by 12.52%, Maruti Suzuki up by 10.89%, Indusind Bank up by 10.74%, Bajaj Finance up by 10.19% and SBI up by 10.09%. On the flip side, Power Grid down by 2.39%, Infosys down by 1.94%, TCS down by 1.74%, NTPC down by 1.52% and Tech Mahindra down by 0.35% were the top losers.

Meanwhile, the Road Transport and Highways Minister Nitin Gadkari has said that the Cabinet will soon decide on the proposed vehicle scrapping policy. He has cleared a cabinet note on the proposed policy and the finance ministry has also approved the same. He said the Cabinet note will now be circulated to ministries concerned and the Cabinet was likely to take a call on it soon. He said the proposed policy for discarding old vehicles once approved will be applicable on all vehicles including two and three-wheelers.

Earlier, the policy had gone for a fresh round of consultation with the stakeholders on the direction of the PMO. The minister had earlier said that once the policy is approved India could emerge as a hub for automobile manufacturing as key raw material available from scrapping like steel, aluminium and plastic are bound to be recycled, bringing down automobile prices by 20-30 percent. In May 2016, the government had floated a draft Voluntary Vehicle Fleet Modernisation Programme (V-VMP) that proposed to take 28 million decade-old vehicles off the road. A committee of secretaries (CoS) recommended to the ministry redesigning of the scheme for greater participation of states with partial support from the Centre. The CoS had suggested that the scheme may dovetail a calibrated and phased regulatory approach for capping the life of vehicles together with stricter implementation of emission norms and accordingly a revised consultation paper got in-principle nod at PMO.

In a bid to spur adoption of electrical vehicles, the government on July 26 this year had proposed amendments to Motor vehicle norms to allow scrapping of vehicles older than 15 years. In a draft notification, the government proposed renewal of fitness certificates for vehicles older than 15 years every six months instead of the current timeframe of one year. The notification also provided that the newly purchased motor vehicles will be exempted for the payment of fees for registration certificate and assignment of new registration mark, if the purchaser produces scrapping certificate of the previously owned vehicle of the same category issued by the authorised scrapping centre/agency.

The CNX Nifty traded in a range of 11,381.90 and 10,691.00. There were 44 stocks advancing against 06 stocks declining on the index.

The top gainers on Nifty were Eicher Motors up by 13.38%, Hero MotoCorp up by 12.34%, Indusind Bank up by 10.94%, Bajaj Finance up by 10.59% and Maruti Suzuki up by 10.54%. On the flip side, Zee Entertainment down by 2.87%, Power Grid down by 2.68%, Infosys down by 1.63%, TCS down by 1.57% and NTPC down by 1.52% were the top losers.

European markets were trading mostly in green; France’s CAC increased 13.99 points or 0.25% to 5,673.07 and Germany’s DAX rose 0.55 points or 0% to 12,458.25, while UK’s FTSE 100 was down by 0.15 points or 0% to 7,356.27.

Asian markets ended mostly higher on Friday amid optimism that the stimulus packages by central banks around the world will help bolster slowing economic growth. Meanwhile, the market’s focus shifted to the US-China trade war as investors digested news that the US and Chinese deputy trade negotiators resumed face-to-face talks for the first time in almost two months on Thursday. Japanese shares ended higher as investors digested data that showed Japan's core consumer inflation slowed to a new two-year low in August, rising 0.5% in August from a year earlier, and slowing from a 0.6% gain in July. The data raised expectations that the Bank of Japan will roll out additional easing measures to boost economic growth.