Local equities maintain positive momentum

Local equity markets maintained their positive momentum in the morning session, with Sensex and Nifty gaining over 750 and 250 points, respectively. Asian Paints, ITC and Larsen & Toubro were the prime gainers among heavy-weights, pushing the Sensex 2% higher. Traders remain optimistic with Niti Aayog Vice Chairman Rajiv Kumar’s statement that Rs 1.45-lakh crore tax giveaway is unlikely to widen fiscal deficit much as the shortfall will be met through increased tax collections due to higher growth which the massive tax cuts are expected to achieve. Some optimism also came in with Union Minster Piyush Goyal statement that the target of making India $5 trillion economy is achievable and that all the stakeholders need to work together to meet this objective. Market participants took encouragement with a report that Reserve Bank of India (RBI) has relaxed the priority-sector lending (PSL) rules for exporters, scrapping the turnover limit for an exporter to be eligible for such loans and increasing the sanction limit per borrower. Besides, Finance minister Nirmala Sitharaman clarified that the sharp cut in corporate taxes would not crimp government expenditure. The lower tax rate would dramatically improve India’s competitiveness.

On the global front, Asian markets were trading in red, as investors kept a wary eye on tensions with Iran and on signals from China and the US on prospects for a resolution of their tariffs war. Back home, India’s coal import declined by 3.7% to 18.93 million tonnes (MT) in July this year from 19.67 MT in the same month a year ago. Of the total coal imports in July 2019, non-coking coal shipment was at 12.66 MT, coking coal’s was at 4.17 MT, among others.

The BSE Sensex is currently trading at 38797.41, up by 782.79 points or 2.06% after trading in a range of 38674.04 and 39346.01. There were 17 stocks advancing against 14 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 2.21%, while Small cap index was up by 1.70%.

The top gaining sectoral indices on the BSE were Capital Goods up by 5.15%, FMCG up by 4.91%, Industrials up by 3.74%, BANKEX up by 3.39% and Consumer Durables was up by 2.97%, while IT down by 2.18%, TECK down by 1.88%, Utilities down by 0.63%, Healthcare down by 0.56% and Power was down by 0.46% were the losing indices on BSE.

The top gainers on the Sensex were Asian Paints up by 7.24%, ITC up by 6.91%, Larsen & Toubro up by 6.90%, Hindustan Unilever up by 6.16% and IndusInd Bank was up by 5.38%. On the flip side, Tata Motors down by 3.79%, Yes Bank down by 3.25%, Infosys down by 2.87%, NTPC down by 2.84% and Tata Motors - DVR was down by 2.68% were the top losers.

Meanwhile, Moody's Investors Service has said the cut in corporate tax is credit positive for companies, after the government announced a reduction in the base corporation tax rate to 22% from 30% as part of stimulus measures to revive slowing economic growth, because it will enable them to generate higher post-tax incomes. It added commodity and information technology (IT) services companies will benefit most from the tax rate cut.

The agency pointed out that while the reduction brings India's corporate tax rate closer to peers throughout Asia and will support the business environment and competitiveness, a host of cyclical factors, including rural financial stress, weak corporate sentiment, and a slow flow of credit in the financial sector, remain headwinds to near-term growth. The agency said it does not expect the corporate tax rate cut to revive growth to the extent that stronger tax buoyancy compensates for the loss of revenue.

Moody's stated it is credit negative for the sovereign, as it aggravates mounting risks for the government in meeting its fiscal deficit target. It highlighted ‘the government deficit target of 3.3% of GDP in fiscal 2019 already assumes faster economic growth and higher tax buoyancy than we expect.’ Besides, it mentioned that the degree of strengthening in corporate credit profiles will depend on whether companies reinvest surplus earnings into their businesses, or use them to reduce debt or to boost shareholder returns.

The CNX Nifty is currently trading at 11510.70, up by 236.50 points or 2.10% after trading in a range of 11471.35 and 11666.35. There were 32 stocks advancing against 18 stocks declining on the index.

The top gainers on Nifty were Larsen & Toubro up by 7.13%, Asian Paints up by 6.93%, ITC up by 6.93%, Britannia up by 6.45% and Hindustan Unilever was up by 6.15%. On the flip side, Dr. Reddys Lab down by 4.17%, Tata Motors down by 3.56%, Infosys down by 3.53%, Yes Bank down by 3.51% and NTPC was down by 2.67% were the top losers.

All the Asian counters are trading in red; Taiwan Weighted dropped 13.75 points or 0.13% to 10,915.94, KOSPI fell 0.95 points or 0.05% to 2,090.57, Hang Seng decreased 229.47 points or 0.87% to 26,206.20, Shanghai Composite declined 39.44 points or 1.31% to 2,967.01, Straits Times trembled 8.50 points or 0.27% to 3,151.18 and Jakarta Composite was down by 18.17 points or 0.29% to 6,213.30.