Two indices of Indian stock market Sensex and Nifty today jumped over 3 percent, extending Friday’s gain as the sentiment turned positive after the government last week cut effective corporate tax rate. Today, Sensex rose 1,075 points to settle at 39,090, adding to Friday’s 1921-point gain. The two-day gain has pushed up investor wealth by over Rs. 10 lakh crore.
Let’s look at few things about the 2-day Sensex rally:
- Banking stocks saw a huge rise in their stocks with Nifty Bank index rising 14 percent during this period. Banking heavyweights such as ICICI Bank and HDFC Bank today hit 1-year highs.
- IT Stocks went negative today with Infosys and TCS both losing 5 percent and 2.5 percent respectively.
- ITC and HUL, the FMCG heavyweights saw a rise with analysts saying that the financials and FMCG sectors will be one of the key beneficiaries of the corporate tax rate cut.
- S Ranganathan, head of research at LKP Securities said, The 10 percent corporate tax reset has witnessed frantic buying across high-tax paying entities in the last two trading sessions. The balancing act has led to selling in IT and Pharma shifts towards manufacturing and private banks and selects FMCG stocks.
- Many brokerages have increased their earnings estimate as well as Sensex targets after the corporate tax cut. The decrease in tax has given the push to Morgan Stanley to raise its June 2020 target for Sensex back to 45,000 after slashing it 40,000 just two weeks ago.
- “Indian markets are trading near its peak valuations so we would remain cautious on the markets and expect it to consolidate in the near term. However, the recent announcements made by the Finance Minister are definitely positive for the Indian economy from a long-term perspective. Hence, investors should focus on accumulating fundamentally sound stocks,” said Ajit Mishra, Vice President of Research at Religare Broking.
- “We need to be cautious while adding long positions at current levels,” citing a spike in India VIX or the volatility index, which jumped 11% today,” said Shrikant S. Chouhan of Kotak Securities.
- Analysts said positive things on midcap and smallcap stocks that have also participated in the twp day rally.
Recently, Finance minister Nirmala Sitharaman with an aim to lift business sentiment and spur investments slashed corporate tax rate – to 22% from 30% for domestic companies – and also proposed a 15% rate for new investment in the manufacturing sector. She offered a Rs 1.45 lakh crore fiscal boost in effect, also sending a strong signal that the government will take all steps needed to revive the growth.
The rise in stocks paints a positive picture currently. Let’s hope this rise continues.