Surprise slash in the corporate tax rate spikes Sensex and Nifty

The Indian equity markets continued Friday’s run by gaining significantly. The BSE Sensex and NSE Nifty made considerable gains on Monday. Sensex recorded its daily high at 39,441 while Nifty touched 11,694 points. The sudden rise in the benchmark indices has come on the back of a surprise cut in the corporate tax rate on last Friday. 

Nirmala Sitharaman, the Finance Minister of India, announced a slash in the corporate tax rate with the intent to attract manufacturers to improve the growth rate, which has fallen to its six-year low. Although the move is definite to cause a revenue loss of nearly Rs 1.45 lakh crore in the current fiscal year, the government is not worried about it. 

FMCG and banking stocks led the gains in BSE Sensex and NSE Nifty. The Nifty 50 index gained as much as 5.5% to breach the level of 30,000 points. The gains recorded by ICIC Bank, Kotak Bank, IndusInd Bank, and Axis Bank were in the range of 6% and 7.5%. 

Also Read: FinMin Press Meet: Low Corporate Tax and Benefits to Equity Market

The FMCG Nifty index shot up by 4.4%. The gain of the index was significantly driven by the stocks of HUL (4%), Britannia (7%), and ITC (8%). The reduction of the corporate tax rate has pleased the FMCG and banking sector as they were liable to the highest tax. A reduction of tax rate has had a positive impact on the banking and FMCG stocks.

The BSE smallcap, and midcap indices too shot up by almost 3% each. The reduction in the corporate tax to 22% might have minimal to no effect on the IT companies in the current financial year. This is because most IT services companies are tax-exempt on their revenues generated from the special economic zones (SEZs).

The stocks of HCL Tech collapsed 1.6%, TCS shed 2.5%, and Infosys dropped 5%. All eyes would be on the investment strategy of the foreign portfolio investors (FPIs). Friday saw FPIs investing Rs 30 crore in the Indian equities while the domestic investors infused more than Rs 3,000 crore.

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