Tax-Booster Effect! Markets Back In Grip Of Bulls
Diwali came a month earlier to the Dalal Street as markets saw fireworks with benchmark indices marking their biggest single-day gains in a decade. The mood, which was depressed since the Union Budget announcement in July, turned optimistic as the Finance Minister pulled out a magic wand and gave a big surprise to the market by cutting tax rates. The FM announced the corporate tax to be reduced by 10 percentage points to about 25 per cent for domestic companies and for the new manufacturing investments. She also announced that the companies can avail the tax rate of 17 per cent, provided the new assets become operational by March 31, 2023. The reduction in corporate tax rates has been a long standing demand of Indian Inc. that was fulfilled by the government just ahead of the festive season. With this positive development, bears were badly mangled, and you could say the bulls recovered their pending dues in two-straight sessions of spectacular rally. The BSE Sensex staged such a rally, adding a whopping 3000 points in just 2 days. Now, let’s see what this move means for the Indian economy. Firstly, the pessimistic were seen devoting a lot of ink and computer pixels to the impact that the tax cut would have on the fiscal deficit. Well, that might be true and we believe that every stimulus comes at a certain cost. As per the estimates of the government, this will cost them a revenue loss of Rs. 1.45 lakh crore. But, this decision by the government is not like playing a Russian roulette; it was taken after proper consultation and calculations. With this move, the government made a strong point that it is not in a denial mode and is ready to support the corporate sector in reviving the economy. Now, let’s move on to how this can help the economy? Well, with a significant cut in taxes, India has now become a more attractive destination to set-up and run a business. Further, lower taxes will help the companies improve the earnings and also increase their cash flows. Besides, we have already seen several upgrades by the brokerage houses for the Indian markets. So in a nutshell, the government has provided the much needed impetus to revive the animal spirit of the economy and now everyone is aligned with one thing, i.e. growth.
Technically, after logging massive gains on Friday and Monday, Nifty has closed above the 50, 100 and 200 DMAs. However, the markets witnessed some consolidation and profit booking after the euphoric rally. As a result, the index has retraced about 23.6 per cent of the previous two sessions rally and has partially filled the September 23 gap. We believe that the ongoing consolidation in the gap area would make the market healthy and we advise the traders and investors to start nibbling strong stocks during this phase of healthy consolidation. While on the downside, the September 23 bullish gap area is likely to act as an immediate support level. Under the current market scenario, investors should explore newer ideas with good fundamentals and most importantly they should reassess the current holding and take appropriate decision for the stock which have not been performing or are under-performing.
Meanwhile, on the global front, volatility is heightened as the hide and seek games of the US-China trade deal continues and also, the impeachment inquiry against President Donald Trump has kept the investors cautious. But, there are chances of improvement in sentiments after latest news surfaced that US and China could strike a deal soon after the US President commented that a deal with China may be closer than anticipated.
Going ahead, the market participants are surely waiting for some more surprises from the Finance Minister and there are reports surfacing that the FM may hold one more round of press conference soon to announce some more measures to boost consumption. Well, if this comes true, then it would be an icing on the cake for the markets and the upcoming Diwali could turn out to be a blockbuster for the investors and for the economy as well. Meanwhile, the market participants will keep an eye on host of economic announcements lined up in the coming days and also, the auto stocks will be in limelight as auto sales number for September will trickle in.
