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Fireworks on D-Street! Sensex, Nifty log biggest gains in 10 years on tax cut

Mumbai: It was early Diwali on Dalal Street after Finance Minister Nirmala Sitharaman on Friday unveiled a bonanza for Indian companies as she slashed tax rate for corporates. The move has been dubbed as the biggest policy reform since 1991.

Sensex zoomed 1,921 points, or 5.32 per cent to 38,014.62, while NSE Nifty jumped 5.32 per cent or 569.40 points to 11,274.20. Both the indices witnessed their best percentage gains since May 18, 2009.

Earlier in the day, Nifty rose as much as 6.32 per cent or 677.10 points to 11,381.90, while Sensex rose as much as 6.33 per cent or 2,284.55 points to 38,378.02.

India’s market capitalisation leapfrogged by Rs 6.82 lakh crore, amid blockbuster gains in the stock market.

“This is indeed a big one from FM! The piecemeal announcements every Friday weren’t helping so far. This one takes the cake,” said Andrew Holland, chief executive of Avendus Capital Alternate Strategies.

Sitharaman proposed to slash corporate tax for domestic and new local manufacturing companies. The effective rate will be 25.17 per cent, including surcharges and cess. The measures will be implemented through an ordinance, she said.

Holland expects the move to boost Nifty earnings by a minimum of 10 per cent.

“Now, one can look forward to another rate cut by RBI (Reserve Bank of India) at the October policy. There is scope for another 5 per cent rise in the market in the near term,” said Holland.

The FM said the new provision has been inserted into the Income-Tax Act with effect from fiscal year 2019-20 to promote growth. It will allow any domestic company to pay income-tax at 22 per cent subject to the condition that it will not avail any other incentive or exemptions.

The rate of Minimum Alternative Tax (MAT) has been reduced from 18.5 per cent to 15 per cent. The objective is to provide relief to companies that continue to avail exemptions and incentives, Finance Minister said.

Her move was applauded by market participants across the spectrum.

“It is nice to see a government, which is so awake and alive to the realities of the economy,” said Saurabh Mukherjea, founder, Marcellus Investment Managers.

“We have had FM address the nation for four Fridays in a row, and announce stimulus packages. This does not have a precedent in Indian history,” said Mukherjea.

All the sectoral indices, except BSE IT and BSE Teck closed higher. BSE Auto index was the best sectoral gained and rallied 9.85 per cent, logging its best single-day gain since May 18, 2009.

BSE Bankex followed next, with a 8.21 per cent gain, which was its best rise since September 5, 2013.

In the broader market, gainers beat losers in the ratio of 2.5:1 on the BSE, indicating strong market breadth. As many as 24 out of 30 Sensex stocks closed higher.

Two-wheeler maker Hero MotoCorp and carmaker Maruti Suzuki India were top gainers, and they raced ahead 12.52 per cent and 10.89 per cent respectively.

In terms of index contribution, private lender HDFC Bank led the pack as it gained 9.06 per cent.

Energy-to-telecom conglomerate Reliance Industries followed with a 6.42 per cent gain.

Expert Take
"The measures, without exaggeration, has revived the sagging economic situation and has reinfused the “Josh” among corporate and capital markets fraternity. Apart from the benchmark indices correcting, it was more to do with the sentiment, which was hitting new lows day after day. That seems to be dealt with by daring to cut to corporate tax, which clearly has a positive impact on earnings. Market is a slave to earnings. It also paves the way for India attracting its share of foreign flows, which is overdue. Hopefully, with positive trigger for higher earnings and change in prevailing pessimistic mood, it is imperative for investors to keep the faith & keep investing in companies with sound fundamentals & robust earnings growth, rather than getting carried away & buying duds"
-- Devang Mehta, Head – Equity Advisory, Centrum Wealth Management

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