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Nifty zooms past 11,200 mark as investors cheer corporate tax rate cut
(17:10, 20 Sep 2019)

Domestic shares surged on Friday after the government slashed the corporate tax rate to boost economic growth. The rally was led by banks and auto stocks. The Nifty closed above 11,200 level for the first time since 26 July 2019.

The barometer index, the S&P BSE Sensex, rose 1,921.15 points or 5.32% to 38,014.62, its highest closing level since 22 July 2019.

The Nifty 50 index rose 569.40 points or 5.32% to 11,274.20, its highest closing level since 26 July 2019.

The market breadth favoured the bulls. On the BSE, 1864 shares rose and 728 shares fell. A total of 144 shares remain unchanged.

The rally was broad based. The S&P BSE Mid-Cap index rose 6.28%. The S&P BSE Small-Cap index rose 3.94%.

Investors are keenly awaiting outcome of the 37th meeting of the Goods and Services Tax (GST) Council, which was scheduled to take place in Goa today.

In a press conference held in Goa today, the Finance Minister Nirmala Sitharaman announced a slew of measures in order to reduce the prevailing taxation rates in the country. The FM said that the new corporate tax rate will be 22% without exemptions. The effective corporate tax rate after surcharge will stand at 25.17%. To further attract investment in manufacturing, local companies incorporated after October 2019 will pay tax at 15%, the FM added.

FM also announced that effective tax for new companies shall be 17.01%, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.

FM further added that the Government will give MAT relief for those opting to continue paying surcharge and cess at 22%. MAT has been reduced to 15% from 18.5% for companies who continue to avail exemptions and incentives.

The government has also decided to not levy enhanced surcharge introduced in Budget on capital gain arising from sale of equity shares in a company liable for securities transaction tax (STT). To stabilise flow of funds into the capital market, enhanced surcharge under Finance (No.2) Act, 2019 will not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for STT. Higher surcharge will also not apply on capital gains on sale of security including derivatives held by foreign portfolio investors (FPIs). Listed companies that have announced buyback before 5 July 2019, tax on buyback of shares will not be charged.

Total revenue foregone for the reduction of taxes and other reliefs is estimated to be at Rs 1.45 lakh crore per year.

The government has decided to expand the scope of spending 2% profits on corporate social responsibility (CSR) to allow spending on incubators or research grants to institutes engaged in promoting science research.

Bajaj Finance (up 10.19%), Hindustan Unilever (up 8.73%), Larsen & Toubro (up 8.63%), Vedanta (up 8.47%) and Reliance Industries (up 6.42%) surged.

Auto shares rallied. Ashok Leyland (up 18.68%), TVS Motor Company (up 13.36%), Eicher Motors (up 13.21%), Hero Motocorp (up 12.52%), Maruti Suzuki India (up 10.89%), Escorts (up 10.51%), Mahindra & Mahindra (up 9.53%), Tata Motors (up 7.36%) and Bajaj Auto (up 6.92%) advanced.

The automobile sector, which is worst hit by the ongoing slowdown due to a slew of factors, is eagerly awaiting a GST cut on automobiles from existing 28%.

Banks stocks surged. Among private sector banks, RBL Bank (up 15.05%), Federal Bank (up 13.47%), IndusInd Bank (up 10.74%), HDFC Bank (up 9.06%), ICICI Bank (up 7.97%), Axis Bank (up 6.65%), City Union Bank (up 6.48%), Kotak Mahindra Bank (up 5.86%) and Yes Bank (up 2.40%) surged.

Among public sector banks, State Bank of India (up 10.09%), Bank of India (up 8.37%), Union Bank of India (up 7.21%), Canara Bank (up 6.22%), Bank of Baroda (up 6.03%), Punjab National Bank (up 5.97%), IDBI Bank (up 5.89%), Central Bank of India (up 3.13%), Corporation Bank (up 2.76%), Andhra Bank (up 2.75%), Syndicate Bank (up 2.56%), United Bank of India (up 1.74%), Allahabad Bank (up 1.32%), Indian Bank (up 1.24%), Bank of Maharashtra (up 1.01%), Punjab & Sind Bank (up 0.76%) and UCO Bank (up 0.34%) soared.

Banks, which are at the top end of the tax bracket, are expected to be the immediate beneficiaries of the corporate tax cut.

As on 31 March 2019, State Bank of India paid a hefty corporate tax of 46.36% while Bank of Baroda paid 37.90%.

Among private sector banks, HDFC Bank paid corporate tax of 34.54%, Kotak Mahindra Bank paid 34.13%, IndusInd Bank paid 33.72% and Axis Bank paid 32.94% in the year that ended in March 2019.

IT shares lagged broader rally as Indian currency firmed up against the dollar in foreign exchange market. Infosys (down 1.94%), TCS (down 1.74%), Hexaware Technologies (down 0.55%) and Tech Mahindra (down 0.35%) declined. HCL Technologies (up 0.05%), Mphasis (up 0.76%), Persistent Systems (up 1.54%) and Wipro (up 1.76%) advanced.

Meanwhile, the S&P BSE IT index fell 1.09% at 15,579.31.

In the foreign exchange market, the rupee edged higher against the dollar. The partially convertible rupee was hovering at 70.94, compared with its close of 71.34 during the previous trading session.

A firm rupee adversely affects operating profit margin of IT firms as the sector derives a lion's share of revenue from exports.

The yield on 10-year benchmark federal paper rose to 6.784% at 16:09 IST compared with 6.634% at close in the previous trading session.

In the commodities market, Brent crude for October 2019 settlement was up 34 cents at $64.74 a barrel. The contract rose 80 cents or 1.26% to settle at $64.40 a barrel during the previous trading session.

Overseas, shares in Europe and Asia edged higher on Friday as economic stimulus around the world eased fears of economic deceleration. On the trade front, Chinese and U.S. delegates are meeting Thursday and Friday ahead of higher-level meetings expected early October to resolve the yearlong trade dispute.

U.S. stocks closed near unchanged Thursday, giving up early gains scored following better-than-expected housing and manufacturing data a day after the second interest rate cut of 2019 by the Federal Reserve.

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