Markets continue jubilation for second straight day

Indian bourses gave a power-packed performance for second straight day on Monday, on the back of Friday’s corporate tax cut by the government. The markets made a gap up opening, aided with Finance Minister Nirmala Sitharaman’s statement that India has become a highly competitive investment destination post corporate tax reduction as the rates are now lower than that in China and most Southeast Asian countries. Adding more comfort among traders, Reserve Bank of India (RBI) 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.

Despite weak global cues, bulls held their tight grip on the streets for the whole day, taking support with Union Minster Piyush Goyal’s 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 also remained optimistic after the Retirement fund body, Employment Provident Fund Organisation (EPFO) in its latest Provisional Estimate of Net Payroll data report showed that India created 11,61,918 new jobs in the month of July 2019 as against revised figure of 10,75,314 in June 2019. As per the report, the maximum jobs were created in the age bracket of 18-21.

On the global front, European markets were trading in red, as the euro area private sector moved close to stalling at the end of the third quarter. The survey data from IHS Markit showed that the flash composite output index fell unexpectedly to a 75-month low of 50.4 in September from 51.9 in August. Asian markets ended mostly in red, after Singapore's inflation increased as expected in August. The data from the Monetary Authority of Singapore and the Ministry of Trade and Industry showed that the consumer price index rose 0.5 percent year-on-year in August, following a 0.4 percent increase in July. The rate came in line with the street expectations.

Back home, the coal industry stocks remained in watch, after India's coal import declined by 3.7 percent 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. Further, the hotel industry stocks also remained in focus, as the GST Council in its 37th meeting approved proposal to cut rates on hotel tariffs. Rooms with tariff Rs 7,500 and above will now be taxed at 18%. Prior to the cut, the GST rate on this category was 28%. GST on rooms with tariff between Rs 1,001 and Rs 7,500 now stands at 12%. No GST on tariffs up to Rs 1,000.

Finally, the BSE Sensex gained 1075.41 points or 2.83% to 39,090.03, while the CNX Nifty was up by 326.00 points or 2.89% to 11,600.20.

The BSE Sensex touched a high and a low of 39,441.12 and 38,674.04, respectively and there were 16 stocks advancing against 15 stocks declining on the index.

The broader indices ended in green; the BSE Mid cap index rose 3.08%, while Small cap index was up by 2.73%.

The top gaining sectoral indices on the BSE were Capital Goods up by 6.55%, Bankex up by 5.68%, Industrials up by 5.14%, FMCG up by 4.28% and Consumer Disc up by 3.56%, while IT down by 3.29%, TECK down by 3.12%, Telecom down by 1.13%, Utilities down by 0.70% and Healthcare down by 0.37% were the top losing indices on BSE.

The top gainers on the Sensex were Bajaj Finance up by 8.70%, Larsen & Toubro up by 8.13%, Asian Paints up by 7.89%, ITC up by 6.95% and Axis Bank up by 6.81%. On the flip side, Infosys down by 4.97%, Tata Motors down by 4.16%, Power Grid down by 4.07%, Tata Motors - DVR down by 3.65% and NTPC down by 3.42% 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 traded in a range of 11,694.85 and 11,471.35. There were 32 stocks advancing against 18 stocks declining on the index.

The top gainers on Nifty were BPCL up by 13.66%, Larsen & Toubro up by 9.14%, Bajaj Finance up by 8.91%, Eicher Motors up by 8.90% and IOC up by 8.45%. On the flip side, Zee Entertainment down by 8.08%, Infosys down by 4.97%, Power Grid down by 4.36%, Tata Motors down by 4.17% and Dr. Reddy’s down by 3.95% were the top losers.

European markets were trading in red; UK’s FTSE 100 decreased 48.74 points or 0.66% to 7,296.18, France’s CAC decreased 51.68 points or 0.91% to 5,639.10 and Germany’s DAX decreased 136.93 points or 1.1% to 12,331.08.

Asian markets ended mostly lower on Monday due to pessimism about the prospect of a trade war between the world's two largest economies. Chinese shares ended lower after Chinese officials canceled a planned visit to US farms and US President Donald Trump said the US was looking for a ‘complete deal’ with China and not a partial one. US President Donald Trump told reporters that he doesn't think he needs to reach a trade deal with China before the 2020 elections, claiming the US is not being affected by the trade war. Though, Seoul shares ended higher as investors watched Middle East tensions and awaited a summit between South Korea and United States this week at the United Nations. Meanwhile, the Japanese market was closed for the Autumnal Equinox holiday.