Sensex up 1,921 points, Nifty closes above 11,250
21 September 2019
"The major stimulus given by the government has positive surprised the market. From the crucial support zone of 10,700-11,000, the Nifty has recovered sharply. This move has taken out the average short price of 11,200 of FIIs. Above this level, we expect FIIs to start closing their short positions, which can push the Nifty higher towards 11,500," Amit Gupta of ICICI direct said.
"Short positions in index heavyweights have been covered partially after the announcement. The same is going to get further enhanced if the Nifty holds above 11,200," he added.
Rupee Update: The Indian rupee has erased some of its intraday gains but trading higher by 30 paise at 71.02 per dollar. However, it rose to 70.67 after Finance Minister Nirmala Sitharaman announced several measures to promote investment and growth.
Market close: It was a blockbuster day for the Indian indices as Sensex and Nifty registered a biggest single session gain in the last 10 years after Finance minister slashed corporate tax rate to 25 percent from 35 percent.
At close, the Sensex was up 1,921.15 points or 5.32% at 38,014.62, while Nifty was up 569.40 points or 5.32% at 11,274.20. About 1823 shares have advanced, 739 shares declined, and 137 shares are unchanged.
Eicher Motors, Hero MotoCorp, IndusInd Bank, UltraTech Cement and Maruti Suzuki were among major gainers on the Nifty, while losers were Power Grid, Zee Entertainment, Infosys, TCS and NTPC.
All the sectoral indices ended in the green led by the auto, bank, metal, infra, FMCG, pharma and energy. BSE midcap rallied over 6 percent, while smallcap index was up 4 percent.
Deepak Jasani, Head of Retail Research, HDFC securities:
The markets have expectedly reacted very well to the relief measures announced today. The Govt has chosen to spur consumption and investment by giving reliefs in direct taxes (vs GST reliefs expected by different sectors).
The loss in terms of tax revenues will take time to be offset by the higher tax revenues gained on consumption (out of higher dividends/buybacks announced by corporates due to Corporate tax savings) or investments in new facilities by corporates out of their savings. In the meanwhile the fiscal situation could see some pressure. This could impact the interest rates unless the compensating liquidity from FPIs and FDI is large enough. Reaction of FPIs to these impacts will be keenly observed.
Fund Manager's Take on FM Move
"The tax reliefs announced are likely to put upward pressure on the fiscal deficit needing a revision in the government’s borrowing target for the year. This would likely lead to upward pressure on bond yields but this could get mitigated if RBI chips in with an aggressive policy rate reduction," Dheeraj Singh, Head of Investments & Fund Manager – Fixed Income, Taurus Asset Management said.
Investment Advisor's Take on FM Announcement
"The government tax cuts announced are likely to create an additional surplus in the hands of corporates which in turn will allow for additional liquidity of nearly $20 billion in the short term. While this will lift corporate confidence and allow for greater investment and job creation, This is a forward looking and progressive reform by the government to ensure India is a fiscally attractive jurisdiction and shows a willingness of the government to forego near-term revenues to build a longer-term competitive global investment destination to attract foreign capital into India at a time when the world is facing a crisis of growth and negative interest rates. This along with the bank mergers is the most progressive policy move seen in decades and sends a clear message that Prime Minister Modi means business and is tackling the economic slowdown pro-actively and is literally taking the bull by its horns. I suspect there is more to follow," Siddharth Mehta, Founder and CIO of Bay Capital Partners said.
Expert's Take on Measures
"This is the historic reform announced by our FM and it is a step in the right direction. The corporate tax cut will expand the bottom-line of the companies and the profits will be utilized to start the capex cycle. We further expect RBI to slash at-least 50 bps rate cut till March 20 thereby infusing growth in the system. We believe GDP to bottom-out in Q1 and can clock in a 6.5 percent GDP growth rate in FY20. With all the reforms galore taken to date by our FM in the right direction, we expect Nifty to touch 12,000 levels by December 19," Forum Parekh, Fundamental Analyst, Indiabulls Ventures said.
Corporate Inc Reaction
"The announcement of Finance Minister on corporate rate tax cut slashed to 22 percent from 30 percent for existing companies with the effective rate at 25.7 percent with all surcharges and 15 percent for new manufacturing companies incorporated before October 2019 will benefit corporate India and shall boost investment cycle in the economy. This move is in the right direction to boost economic growth. The decision towards enhanced surcharge of funds not applicable to capital gains including derivaties FPI’s is seen as a bold step by the Government. This move shall invite investments in capital markets by FII," Parth Mehta, Managing Director, Paradigm Realty said.
Crude Update: Asian share prices rose on Friday as economic stimulus around the world helped eased fears over slowing growth, while crude oil prices climbed on concerns that last weekend's attacks on Saudi Arabia's oil facilities still pose supply risks.
Currency Update: Asian currencies advanced on Friday against the dollar with the Indian rupee gaining the most after the country's finance minister announced deep cuts in corporate taxes to revive flagging growth in the region's third-largest economy.
Ajit Mishra, Vice President Research, Religare Broking:
The finance minister has finally taken strong measures to kick start the economy. The corporate earnings had worsened in the last few quarters mainly due to the ongoing slowdown. The cut in corporate tax rate would mean more income for corporates. This would have a direct positive impact on the EPS on all domestic companies. Further, this move along with the easing of enhanced surcharge has the potential to revive FII sentiments as well, as the corporate tax rate makes Indian companies more competitive in the global markets.
Market Update: Benchmark indices are trading higher but off day's high after Finance Minister slashing corporate tax rate to 25 percent from 35 percent.
The Sensex is up 1,759.69 points or 4.88% at 37853.16, while Nifty is up 518.60 points or 4.84% at 11223.40. About 1663 shares have advanced, 563 shares declined, and 108 shares are unchanged.
Ajay Bodke CEO PMS Prabhudas Lilladher:
In a major boost to revive flagging animal spirits & position India as one of the most attractive business destinations, government of India has announced a slew of measures that would act as a force multiplier for the flagging economic engine. By slashing corporate tax rate to 25% from 35% (22% from 30% without exemptions) for existing domestic companies & an extremely attractive rate of 15% for new companies setting up manufacturing operations after 1st October 2019 and commencing operations before 2023, government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI & FII flows over the medium term.
Equity markets would rejoice as the multi-year cycle of earnings downgrade will finally come to an end. A significant valuation re-rating will follow as the market would start building in a virtuous cycle of upgrade in earnings trajectory over the medium-term due to both tax savings & boost in revenues due to perk-up in aggregate demand. The engine of domestic consumption will fire first followed by the investment engine on the back of corporates regaining their mojo. Incentives announced last week for export sector will also support the third engine of growth i.e. exports.
Buzzing: Shares of HDFC Bank surged 10 percent on BSE on September 20, marking their highest intraday gain in over 30 months, after the government announced corporate tax rate cut.
The corporate tax rate was cut by 800 basis points to 22 percent, without any exemption, from 30 percent.
Abhimanyu Sofat, Head Of Research, IIFL Securities:
The announcement made by FM, are expected to have maximum impact to improve market sentiment and address concerns of slowdown in the economy. Effective tax rate reducing to 25.17% will significantly improve profitability of full tax paying companies leading to change in roe leading to multiple re-rating. Reduction in MAT as well lower rate of tax for a new company which does investment in manufacturing till 2023 should lead to higher capex. Further, removal of enhanced surcharge on capital gains should be a big positive for investors. Though, the overall revenue loss of Rs 1.45 lakh crore may be considered negative from the bond market perspective but we believe that getting the growth back should be a priority for the government.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities:
The Government’s announcements today is definitely a positive move. It is also a prudent move to reduce the corporate tax rates because (1) it increases the retained earnings of the companies and forms the investible surplus for future, (2) moves India to parity with its regional peers thereby removing one of the issues related to manufacturing and exports, (3) maintains macro prudence by continuing to favour investment cycle rather than consumption cycle. On the flip side, it will negatively impact the bond market as the revenue forgone due to the tax rate reduction will make it difficult to stick to the gfd/gdp budgeted target.
Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote:
This is yet another surgical strike on bears and negative sentiments in the economy which will create an environment of surplus in the hands of corporates for making further investments and ease their liquidity concerns. The reduction to 22% in corporate taxes will result in massive release of Rs 1,45,000 crore immediately in the economy which will boost sentiments and bring in real surplus to the corporates.
Companies in Consumer Finance, banks both Pvt and Public sector, Hotels all pay upwards of 32% tax will have maximum benefits, however rest of the sectors will have nominal positive impact. This is a path breaking move delivered by Modi 2.0 government in the interest of economy at the cost government exchequer in times of crises which will go down well in the history.
Rupee Update: The Indian rupee has extended the morning gains and trading higher by 43 paise at 70.89 per dollar on the back of domestic equities witnessing huge buying post Finance Minster Nirmala Sitharaman cut the corporate taxes.
Rupee has touched an intraday high of 70.67 per dollar.
Pritesh Mehta, Lead Technical Analyst - Institutional Equities, YES Securities:
In today’s trade, bulls have gathered enough resolve to halt the recent trend of decline. Besides, we have seen how markets always reverts whenever a bearish bias or weakness swings too far in one direction. In Nifty’s case, this week’s sharp correction from 11,100 to yesterday’s low of 10,670 has found support around confluence of support zone of 10,600-10,650. Presence of point of polarity and three-digit gann number of 106(00) for the time being has put a stop to the decline spree and has given bulls much needed ammo to challenge supply zone of three-digit Gann number of 11,100.
Anusha Raheja, BFSI Research Analyst at LKP Securities.
In yesterday's press conference, FM asked banks not to declare stressed loans given to MSME sector as NPA till March 2020 and consider recasting of such debts. This is sizeable negative for all the banks - possibility of wilful defaulters will increase meaningfully and credibility of balance sheets of banks will reduce as it will undermine the actual NPA stress on the books. Also dilution of credit risk norms while giving additional credit via PSBs to retail, agri and MSME sector is one of the major risk.
Market Udpate: Benchmark indices jumped more than 2 percent on September 20 after Finance Minister Nirmala Sitharaman proposed to slash corporate tax for domestic companies and new domestic manufacturing companies.
Nomura Model Portfolio Changes
Japanese brokerage firm Nomura added AIA Engineering to its portfolio and raised weight in L&T, the engineering and construction major.
In financials, the research house raised weight in ICICI Bank, but cut weight in SBI and removed Shriram Transport Finance.
The brokerage further reduced its weight in the auto sector, which fell more than 30 percent in last one year and removed Hero MotoCorp.
Nomura replaced BPCL with GAIL and Info Edge with Mphasis.
IIFL Securities Debuts
Shares of IIFL Securities, the demerged entity from IIFL Finance (erstwhile IIFL Holdings), started off trade at Rs 22 on the National Stock Exchange, against previous close of Rs 417.45.
The stock was locked at 5 percent upper circuit at Rs 23.10 in the opening trade itself whereas on the BSE, it was frozen at 5 percent lower circuit at Rs 39.60 after opening at Rs 41.65.
In terms of volumes, IIFL Securities traded with volumes of 42,537 shares on the NSE and 1,295 shares on the BSE.
Gold Update: Gold prices edged higher on Friday and were set for their first weekly gain in one month, supported by a softer dollar and caution about developments in Sino-US trade talks.
Zee Entertainment hits 52-week low: Share price of Zee Entertainment Enterprises fell further on September 20, hitting 52-week low of Rs 277.95 following reports that the promoter had been restricted from selling stake in the media company.
Buzzing: Shares of Yes Bank rose 3.7 percent in the early trade after hitting 52-week low of Rs 52.65 as promoter of the company sold 2.3% shares of the bank.
Market Opens: It is positive start for the Indian indices on September 20.
At 09:16 hrs IST, the Sensex is up 48.14 points or 0.13% at 36141.61, and the Nifty up 9.80 points or 0.09% at 10714.60. About 405 shares have advanced, 231 shares declined, and 28 shares are unchanged.
Tata Steel, Maruti Suzuki, HDFC Bank, Indiabulls Housing, Eicher Motors, RIL and Bajaj Finance are among major gainers on the Indices, while losers are Zee Ent, Axis Bank, Coal India, Power Grid and GAIL.
Among sectors, except auto, all other indices are trading with marginal loss. Midcap and smallcap indices are also flat.
Rupee Opens: The Indian rupee gained in the early trade on Friday. It has opened higher by 12 paise at 71.20 per dollar versus Thursday's close 71.32.
Market at pre-open: Benchmark indice are trading higher in the pre-opening session on September 20.
At 09:01 hrs IST, the Sensex is up 119.71 points or 0.33% at 36213.18, and the Nifty up 82.70 points or 0.77% at 10787.50. About 3 shares have advanced, 1 shares declined, and 2597 shares are unchanged.
Nomura on Model Portfolio Changes
Add AIA Engineering to our portfolio & raise our weight in L&T
In financials, raise ICICI Weight & cut weight of SBI & remove Shriram Transport
Reduce our weight further in the auto sector & remove Hero Moto
Replace BPCL with GAIL & Info Edge with Mphasis
CLSA on 2-wheelers
Margin pressure should persist as cos may find tough to pass on full cost impact
Cut FY20/FY21 2-wheeler industry volume growth forecasts from -2%/+5% to -7%/+4%
FY20-21 eps estimates cut by 3-12%
Retain sell on Bajaj, Hero & TVS & outperform on Eicher
Bajaj auto target at Rs 2,275, Hero Moto at Rs 2,100 per share
TVS target cut to Rs 325 from Rs 360 & Eicher target cut to Rs 18,000 from Rs 19,000 per share
Chris Wood, Jefferies
A 4% investment will also be initiated in HDFC Life
Will cut investments in Bajaj Fin, HDFC & AIA & galaxy by 2 ppts, 1ppt & 1ppt respectively
Some profit taking is called for in Bajaj Fin as it’s up 697% since inclusion in 2015
Credit Suisse on HDFC Bank
Maintain outperform, target at Rs 1,350 per share
Well placed despite slowing macro environment
Bank expects mkt share gains to accelerate as customer acquisition has picked up
Management expects net customer adds to rise to 6 m in FY20
Risk weight reduction in cons loans should boost cap adequacy to >15.5%
Expect bank's NPAs to remain contained
HSBC on Reliance Industries
Maintain buy, target at Rs 1,475 per share
TRAI initiates consultation process to review timing of moving towards zero-IUC
If zero IUC is delayed, it would be marginally negative for company’s telecom business
Rebound in refining margin & growth in retail & telecom support its FY20 outlook
Co trading at FY21e EV/EBITDA of 8.1x, similar to its 10-yr historical average
Earnings momentum & inexpensive valuation, drive our buy rating
Morgan Stanley on Zee Entertainment
Underweight call, target at Rs 370 per share
Stock will remain volatile on any news flow w.r.t debt obligations
Essel group's debt could come down to Rs 6,700 cr by next week
Co expected to get balance funds from stake sale to Invesco Oppenheimer
Wall Street ends mixed: Wall Street ended mixed on Thursday, with a gain in Microsoft offsetting a dip in Apple, a day after the Federal Reserve cut interest rates as expected and left the door open for further monetary easing.
Asian markets trade higher: Asian share prices inched higher on Friday as economic stimulus around the world eased fears of economic deceleration while crude oil prices climbed on concerns that last weekend's attacks on Saudi Arabia's oil facilities still pose supply risks.
SGX Nifty: Trends on SGX Nifty indicate a flat opening for the broader indices in India, a gain of 15.50 points or 0.14 percent. Nifty futures were trading around 10,720-level on the Singaporean Exchange.