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Market engine on overdrive, this time on FPI fuel

On Monday, the Nifty reclaimed 11,600 and the Sensex closed above 39,000.

ET Bureau|
Updated: Sep 24, 2019, 08.56 AM IST
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Some fund managers toned down their optimism after the 8.1 per cent rally on concerns over the impact on fiscal deficit.
Mumbai: The stock market soared almost 3 per cent on Monday as investors rode the wave of optimism surrounding corporate tax rate cuts aimed at reviving the economy and boosting consumption.

Monday’s advance follows a steep surge on Friday, resulting in a total gain of 8.3 per cent for the Sensex and the Nifty – the best two-day advance in 10 years. The Sensex has climbed 3,000 points since Friday while the Nifty has risen 895 points.

On Monday, the Nifty reclaimed 11,600 and the Sensex closed above 39,000. The indices last traded above this level before July 17. Both are now up about 6-7 per cent in 2019. The run, however, has made traders anxious about immediate prospects. NSE’s Volatility Index — a measure of traders’ perception of near-term risks — jumped 10.7 per cent.

The Sensex rose 1,075.41 points, or 2.83 per cent, to close at 39,090 while the Nifty jumped 329.20 points, or 2.92 per cent, to 11,603.40.

Private bank shares were top gainers
sensex-graph

Both indices had risen 5.3 per cent on Friday — the biggest single-day gain in 10 years.

“There was a feeling among a certain section of investors of having missed out on Friday. So, there was a follow-up buying on Monday,” said Shiv Diwan, co-head, Edelweiss Institutional Equities.

Foreign portfolio investors pumped Rs 2,684.05 into stocks on Monday after buying only Rs 35.78 crore in the previous session. Their domestic peers, which mopped up shares worth Rs 3,001 crore on Friday, bought Rs 291.95 crore on Monday.

Fund managers said the tax cut will put more cash in the hands of companies and boost earnings estimates, translating into higher share prices. Brokerages such as Goldman Sachs, Nomura and Citi have raised their targets on Sensex and Nifty by 4-6 per cent after the stimulus.

“The bullish sentiment is likely to continue,” said Harsha Upadhyaya, CIO (equity) at Kotak Mahindra Asset Management. “This is a mega structural reform. Growth will be capex driven and not just consumption driven.”

Private bank shares were the top gainers with the Bank Nifty index jumping 5.4 per cent as lenders are expected to be among the biggest beneficiaries. Axis Bank, Kotak Mahindra Bank, IndusInd Bank and ICICI Bank advanced 5-8 per cent. Tax rates for domestic companies have been slashed to 25.17 per cent and for new domestic manufacturing companies to about 17 per cent. Brokerage Investec said HDFC Bank and Kotak Mahindra Bank could be the top beneficiaries of the tax cuts.

The government’s stimulus has single-handedly reversed the bearish sentiment weighing down the market in recent months. Analysts said a sizeable chunk of the gains on both the days can be attributed to liquidation of the bearish bets. “We believe that sentiment has clearly changed and the bottom which we saw last week shouldn’t be seen again,” said Diwan.

Some fund managers toned down their optimism after the 8.1 per cent rally on concerns over the impact on fiscal deficit. A section of the market feels more needs to be done to revive the economy.

“I’d temper enthusiasm by adding that more measures need to be taken yet,” said Hugh Young, head of Asia Pacific, Aberdeen Standard Investments. “The Indian government needs to encourage investment by making doing business easier and also needs to tackle banking system.”

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