Indian markets surged over 1.2 percent on Wednesday, led by gains in oil and gas firms after the government lifted a levy on gasoline exports and cut windfall taxes on other fuels.
At 10am, the benchmark Sensex rose 1.2 percent to 55,407 points while Nifty gained 1.2 percent to 16,541 points. This was the fourth consecutive sessions when both the indices have risen. So far this month, both the Sensex and the Nifty advanced 5 percent each.
The listing of the levy offers a relief for Reliance Industries Ltd and Oil and Natural Gas Corporation. The move came less than three weeks after the tax was imposed. On July 1, the government slapped taxes to tap the booming profits of energy companies but international crude prices have come down since then, eroding profit margins at both oil producers and refiners.
The gains in global equities after fall in dollar also improved sentiment. Overnight, Dow Jones, S&P500 and Nasdaq surged nearly 3 percent each while emerging markets, which include FTSE100, CAC 40 and DAX, advanced between 1-3 percent. Asian markets too trading higher. Nikkei rose 2.5 percent, while Hang Seng climbed 1.4 percent.
There are several factors that pushed the Indian markets higher on Wednesday.
Elimination of taxes: The government reduced the windfall tax on diesel and aviation fuel shipments by Rs 2 a litre and scrapped a Rs 6-a-litre levy on gasoline exports. It also exempted overseas shipments from export-focused plants, according to a government notification. Tax on domestically produced crude has been lowered by about 27 percent to Rs 17,000 a tonne.
Softening commodity prices: With the commodity prices easing, crude dropping below $100 a barrel, and rural sentiment turning positive, the Nifty Midcap and Nifty Smallcap indices have seen a rally. The indices have climbed nearly 9 percent and 8 percent in July 2022 so far. “Recently, commodity prices have started softening, crude oil prices have started falling and rural sentiment has become stable, after a favourable monsoon. All these have turned the investor sentiment positive. The valuations of these companies are compelling, after a sizable stock price correction,” said Mitul Shah, Head of Research at Reliance Securities.
RBI policy: Analysts expects the Reserve Bank of India likely to slow the pace of its rate hike ahead relative to its super sized hikes earlier. "We expect it to raise the repo rate by 25 basis points to 5.15 percent at its August 4 review. This would complete RBI's withdrawal of its ultra accommodation in place since the pandemic. Looking ahead, we expect the RBI to raise rates further to 5.75 percent by December. That would bring real rates to a positive level of 0.8-0.9 percent on an ex-ante basis, in line with RBI's estimate of the neutral rate," said one of the analysts Moneycontrol spoke to.
Monsoon: The monsoon has progressed much faster than previously anticipated, running at more than 40 percent above its normal levels in the first two weeks of July. Analysts expect sowing activity to pick up significantly in the coming weeks, as rainfall strengthens and enter the critical stage of sowing season. With commodity prices having eased sharply on the back of a feared global recession, improving monsoon, and the decline in vegetable and edible oil prices, the Indian retail inflation prints should soften below 7 percent in the coming months, analysts expects.
Dollar index: The dollar index fell for the fifth session after analysts trimmed bets on the pace of US federal Reserve interest rate hikes. Earlier, analysts were expecting 100 basis point hike in its next fed policy after US recorded 41 year high inflation but now they expects 75 basis points. Investors are seen staying a bit cautious ahead of a European Central Bank policy meeting. The next Fed meeting is on July 26-27.
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