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5 factors driving markets as Sensex, Nifty touch 4-month high

All sectoral indices, barring FMCG, traded in the green with Nifty Auto and Metal rising more than 4 percent each. Bank, IT and Pharma gained more than a percent each.

October 29, 2019 / 03:48 PM IST

After witnessing volatility in the week gone by, the market kicked off the truncated week on a strong note on October 29. Benchmark indices, the Sensex and the Nifty, rallied more than a percent hitting a four-month high.

All sectoral indices, barring FMCG, traded in the green with Nifty Auto and Metal rising 4 percent each. Bank, IT and Pharma gained more than a percent each.

The broader markets also participated in the bull run as Nifty Midcap climbed 1.26 percent and the Smallcap index rose 0.75 percent.

The BSE Sensex jumped 581.64 points to 39,831.84 and the Nifty50 rallied 159.70 points to 11,786.90, the highest level since July 5, 2019.

The market breadth remained in favour of bulls as about 1,408 shares advanced while 1,032 shares declined on the BSE.

Close

Here are five key factors that lifted the market sentiment:

Huge Tax Cuts Likely

Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman are planning a series of tax alignments for equities in the coming weeks in a bid to further boost investor sentiment and bring in much-needed foreign exchange into the government’s coffers, sources in the Finance Ministry and NITI Aayog told CNBC Awaaz.

Existing structure of Long Term Capital Gains (LTCG) tax, the Securities Transaction Tax (STT) and Dividend Distribution Tax (DTT) are being reviewed by the Prime Minister’s Office in consultation with the Finance Ministry’s Revenue Department and NITI Aayog, a source said.

“These steps are likely to be announced before or in the Budget,’’ another source said. Sitharaman, already on a tear when it comes to announcing steps to boost slowing economic growth, is likely to present the Annual Budget for FY21 on February 3. “Now a group of officials are preparing the groundwork which is likely to finalised by November-end,” the source added.

Earnings

September quarter results of benchmark heavyweights SBI, Tata Motors and ICICI Bank that came in the later part of the week gone by lifted market sentiment. Both, SBI and ICICI, reported that asset quality continued to improve with fall in slippages in the July-September quarter. As a result, most brokerages feel there could be strong earnings growth in FY21.

Profit of both banks was impacted by deferred tax assets adjustment after the corporate tax cut, but most analysts remained bullish on the stocks, expecting up to 42 percent increase in target price over next one year period.

Tata Motors reported healthy growth at operating level due to cost measures and Jaguar Land Rover, which lifted stock 16.6 percent today on top of 16.5 percent rally on Muhurat trading day. Analysts upgraded their rating on Tata Motors and some also raised target price.

JLR EBITDA margin in Q2FY20 was at 13.8 percent, the highest in the last 16 quarters and was quite high compared to analyst expectations of 8.6 percent. It reported profit before tax at Rs 621 crore against loss of Rs 823 crore YoY as there was an improvement in China on back of better operational metrics.

After Tata Motors earnings improvement, Motherson Sumi Systems also gained more than 7.7 percent.

Reliance Jio To Be Debt Free

Shares of Reliance Industries hit a record high of Rs 1,480.40 intraday and closed 2.3 percent higher after the board on October 25 approved the formation of a wholly-owned subsidiary for its digital business and the infusion of Rs 1.08 lakh crore in it, which will be used to reduce Jio's debt.

The Rs 1.08 lakh crore investment will be in the form of a rights issue of optionally convertible preference shares (OCPS).

The new subsidiary, which will become Reliance's umbrella platform for all digital businesses including Jio, will also acquire RIL’s equity investment of Rs 65,000 crore in Jio. Bringing up Reliance's total investment in the digital business to Rs 1.73 lakh crore so far.

Following this arrangement, Reliance Jio will become virtually net debt-free by March 31, 2020, with the exception of spectrum-related liabilities.

Brokerages remained bullish on the stock on the company's asset monetisation plan. CLSA has a buy call on the stock with a target at Rs 1,710, implying 19 percent potential upside from current levels as company repositioned Jio as a digital major ahead of a potential stake sale.

"Indicative OCPS conversion price suggests a value of $65-70 billion for digital business. Cleaner structure may be a precursor to stake monetisation in the digital business," the brokerage said.

US-China Trade Progress and FOMC Meet

US markets rallied on Monday, amid growing hopes for a US-China trade deal and the view that the US Federal Reserve this week will deliver its third interest rate cut for 2019.

US and Chinese officials are "close to finalising" parts of a trade agreement after high-level telephone discussions on Friday, the US Trade Representative's office and China's Commerce Ministry said. The USTR provided no details on areas of progress.

US President Donald Trump said he hopes to sign the deal with China's President Xi Jinping next month at a summit in Chile.

The two-day US Federal Reserve meeting will begin on Tuesday and the FOMC will announce conclusion on Wednesday. Most analysts and economists expect the Fed to cut rate by 25 bps but the commentary would be the key event to watch out for.

Technical View

The Nifty50 closed above 11,780 levels and formed bullish candle on daily charts, which indicated that index could be preparing ground towards its resistance of 11,850-11,900 levels.

"We are still hopeful as we can see bulls trying to flex their muscles a bit and hence, expect some good days to come for our market. On the daily chart, we can see a breakout happening during last week from an ‘Inverse Head and Shoulders’ pattern. Although the follow-up move is lacking, one should remain upbeat as long as recent swing low of 11,090 is intact," Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel Broking told Moneycontrol.

Meanwhile, 11,450–11,350 can be seen as immediate supports, and on the higher side, we could see rally extending towards 11,850–11,900 first or maybe beyond 12,000 once Nifty manages to sustain above 11,700, he said.

He advised traders/ investors to keep following 'buy on declines' strategy and should focus on apt candidates which are gearing up for decent moves going ahead.

"We hope for the new SAMVAT to bring back a lot of positivity in the market and by next Diwali, markets should be at much-elevated levels with broadbased rallies from hereon," he said.

Disclosure: Moneycontrol is published by Network18, which is owned by Reliance Industries.



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Sunil Shankar Matkar
first published: Oct 29, 2019 12:42 pm
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