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Three cheers to markets, bank stocks lead the rally

The fight between the bulls and the bears led to an extremely volatile session on Dalal Street, with the Sensex moving almost 700 points to end the day at 29,361.50, gaining 141.38 points or 0.48%.

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The fight between the bulls and the bears led to an extremely volatile session on Dalal Street, with the Sensex moving almost 700 points to end the day at 29,361.50, gaining 141.38 points or 0.48%.

The market upmove was majorly led by banking stocks which will be positively affected by the budget announcements. Bank Nifty was the lead gainer with gains of 3.62%. The Nifty clocked gains of 57.25 points (0.65%).

After a buoyant start, markets came under pressure after the presentation of the Union Budget 2015-2016 in which the finance minister announced a budget aimed at long-term high growth rate.

The markets gave thumbs up to the first full-fledged budget of the Modi government as finance minister Arun Jaitley announced a slew of reforms like deferment of GAAR by two years, commitment to charge any tax only with prospective effect, reduction in corporate tax in a phased manner, making foreign direct investment (FDI) and foreign portfolio investment (FPI) one, scrapping of minimum alternate tax and the proposal of bankruptcy code.

Experts believe that the focus on ease of doing business and general long-term focus as evidenced by the boost to infrastructure investment and expectations of double digit growth will further renew the confidence of global investors in the country.

Jaitley also proposed a reduction in corporate tax from the current level of 30 per cent to 25 per cent over a period of 4 years, but the exemptions on the corporate tax will be done away with. It can be noted that the government and India Inc were embroiled in litigation issues due to uncertainties surrounding the exemptions on the corporate tax.

"The surcharge of 2% on corporate tax is near-term negative for the markets, but is well-balanced with the medium term commitment to lower base corporate tax rate from 30% to 25%, simplifying the tax structure as well as sticking to the April 2016 deadline for GST," said Dinesh Thakkar, chairman and MD, Angel Broking.

The ambiguity surrounding FII and FDI has been taken care of in this budget. The demarcation of both FII and FDI had led to a confusion among foreign investors regarding the investment limit in different sectors.

Deven Choksey, MD and CEO, KR Choksey, says that as FII and FDI will become one, more clarity will be obtained on foreign investments. "It will also lead to more inflow of money and there can be better monitoring of these investments."

The scrapping of MAT for FIIs has also proved to be a big boost for the markets as the foreign investors will have to bear only the capital gains tax and not MAT. Thus the inflow of money by foreign investors will now be considered as an investment and not business. This will also help increase the inflow of money by foreign investors.

"The proposed bankruptcy code will help provide a legal framework to banks in recovering money from the bankrupt clients" adds Thakkar.

The investment of 70,000 crore towards infrastructure announced by Jaitley will give a boost to the existing projects which are stalled due to lack of funds.

"We reiterate our view that sustainability above 8,900 in Nifty would lead it to 9,200 mark in the coming sessions. Meanwhile, traders should uphold positive yet cautious approach as volatility would remain on the higher side. Among the sectors, private banking, finance, auto and infra look buoyant for fresh buying," said Jayant Manglik, president, Religare Securities.

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