Markets log 2nd biggest gain ever; m-cap jumps Rs 7L cr

Indian markets on Friday are witnessed their second-biggest ever rally after Finance Minister Nirmala Sitharaman announced the cut in the corporate tax rates, with investors becoming richer by Rs 6.89 lakh crore.

The 30-share benchmark index of Bombay Stock Exchange (BSE) Sensex opened higher by 121 points but surged by a whopping 950 points in the first hour of the trade as Sitharaman announced cut in the tax rates. The rally persisted throughout the day as the Sensex closed with a gain of 1921.15 (5.32%) at 38,014.62 points. Hero MotoCorp, Maruti, IndusInd Bank, Bajaj Finance, SBI, M&M, and HDFC were the biggest gainers on the index, with gains ranging from 9% to 13%. IT stocks, however, lost in the range of 1-2%. The overall market sentiment was also heavily positive with 1,852 advances against 745 declines.

The index made its second-highest single-day gain, falling short of the 2,111 points rally on May 18, 2009 on the back of re-election of the UPA government. With this, the Sensex has wiped off all the losses it had made over the past two months.

Similarly, broader index NSE Nifty50 was trading with a gain of 569.40 (5.32% ) at 11,274.20 points at the close of trade on Friday. Meanwhile Bank Nifty surged by 2,223.90 (8.31%) over the previous close, its highest ever gain in history.

The rally came after the government announced the lowering of corporate tax rates. The government proposed to slash the corporate tax rate for domestic companies and new domestic manufacturing companies and, according to Finance Minister Nirmala Sitharaman, the ordinance for cutting tax rate has been passed.

“Finally, the government has come out with a much-awaited big bang fiscal stimulus that would benefit companies across various sectors. Most companies operating in sectors like auto & auto ancillaries, engineering, industrials, consumer goods have an effective tax rate of over 30% currently.” Gaurav Dua, Sr VP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas.

Also read — Key takeaways from FM Sitharaman's press confererence

Bonds sell-off

The bond markets on Friday started faltering after the Finance Minister Nirmala Sitharaman announced the cut in the tax rate for corporate.

With investors worried over the fiscal impact of the measure, the holders of 10-year G-secs started selling the bonds, and the bond yields surged to its highest since July 2.

The bond yield, after the FM’s announcement, surged to 6.874%, highest since it tested 6.876% on July 2. The 10-year G-sec yields closed the day's trade at 6.782% -- highest since July 03, when it had closed at 6.833%

The bond yields and the bond prices share an inverse relationship with each other.

“The resultant deficit will increase government borrowing which will be bond surplus hence demand will fall along with price,” analysts said.

The announcement will cost government revenues to the tune of Rs 1.43 lakh crore, which will impact the government estimates for fiscal deficit at a time when revenue growth isn’t up to mark.