The Indian market saw its biggest two-day rally as Sensex climbed more than 3,000 points. Bulls took complete control of the market after the September 20 measures which came with a banger in the form of corporate tax cuts.
The rally made investors richer by Rs 10.50 lakh crore, NAVs climbed over 10 percent and SIP investors saw a one-year rally in just two consecutive sessions.
The BSE Sensex climbed 1,075.41 points or 2.83 percent to 39,090.03 and the Nifty50 surged 326 points or 2.89 percent to 11,600.20 on top of a 5.32 percent upside each in previous session.
The market breadth continued to be in favour of bulls as more than three shares advanced for every two shares falling on the BSE.
The broader markets also traded in line with benchmark indices with Nifty Midcap and Smallcap indices gained 2.5 percent and 3 percent respectively..
All sectoral indices, barring Pharma and IT, continued to tread higher with the Nifty Bank and Financial Services climbing over 5 percent each. Auto and Realty rallied 2-3 percent while FMCG gained 4 percent.
Here are five key factors that are driving the market:
In a surprise move, the government has provided a direct fiscal stimulus of Rs 1.45 lakh crore via reduction in key tax rates, which ultimately compelled every domestic as well as global brokerage house to revise market strategy upwards.
The government slashed corporate tax rate to 22 percent from 30 percent with effective tax rate lowered to 25.2 percent from 34.9 percent earlier (including surcharge and cess) and cut the minimum alternate tax rate to 15 percent from 18.5 percent.
The government also announced a special 17 percent rate for new companies incorporated on or after October 1, 2019, and starting new manufacturing facilities before March 2023.
The government also removed the additional surcharge on capital gains for all classes of investors. Also, the listed companies which have announced a buyback prior to July 5 (the Budget Day) will not be subject to the new buyback tax.
Revision in earnings
The fiscal measures impact is expected to be so big that analysts, investors, brokerages increased their earnings estimates by a wide margin and also revised Sensex/Nifty targets.
Most experts expect earnings to increase by around 8-10 percent in FY20 and revised Sensex/Nifty target by 15-20 percent for next one year.
Ridham Desai, Managing Director at Morgan Stanley India said thinks that the corporate tax cuts create room for improved earnings growth. Hence, he raised earnings growth estimates for the BSE Sensex to 25 percent in 2020 and 23 percent in 2021 and raised Sensex target to 45,000 by June 2020.
"The big 10 percent cut in corporate tax rate drives our Nifty EPS upgrade of 8-10 percent but, more importantly, is the biggest signal that growth is now the policy focus. This, after the last few years of restructuring/reforms drove growth/earnings disappointments," Gautam Chhaochharia of UBS Securities India said.
Finance Minister Nirmala Sitharaman, on September 20, also announced several revisions to the goods and services tax (GST) rates following the 37th GST Council meeting.
Several decisions taken were aimed at promoting tourism. The Council approved a cut in tax rates on rooms with a tariff of Rs 7,500 and above to 18 percent and those with tariff below Rs 7,500 to 12 percent. GST on room tariff below Rs 1,000 has been scrapped.
GST rate on railway wagons and coaches was increased to 12 percent from the existing 5 percent while that on caffeinated drinks was raised to 28 percent from 18 percent, with an additional 12 percent GST compensation cess.
GST cess on 10-13 seater passenger vehicles (PVs) cut to 1-3 percent. Exemptions from GST and IGST have been provided on imports of specified defence goods up to 2024.
Supply of goods and services to FIFA and for goods and services to hold under-17 Women's Football World Cup In India will also be exempted from GST.
The Council has also approved rate reductions on cut and polished semi-precious stones. GST on dried tamarind has been removed.
Easing US-China trade tensions
The US-China trade war concerns eased for the time being after both parties showed intention to resume talks in October, which will be closely watched globally.
US said that China would restart purchasing US agricultural products that had halted in retaliation against President Donald Trump's tariffs. Even US delayed its recent tariffs on $250 billion Chinese goods by 15 days to October 15 as a "gesture of goodwill" to China.
Now all eyes are set on the meeting between Chinese and US delegates that is scheduled to be held on Thursday and Friday in the coming week. A meeting between the higher-ups of both countries is also scheduled to take place in October. Both sides started preparing for new rounds of talks to resolve the trade war.
The Nifty50 rallied quite sharply for the second consecutive session, surpassing 11,600 levels and formed bullish candle which resembles a Spinning Top kind of pattern on daily charts.
The index also managed to close above 200 DMA after trading below this indicator for almost 2 months.
Technical experts expect the Nifty to surpass its key hurdles 11,800-11,900 levels soon and said supports now shifted higher to 11,000-11,300 levels.
"The undertone continues to remain bullish, however, Nifty may consolidate near 11,700-11,800 levels for few sessions going ahead. Mid and small caps are likely to catch in a big way going ahead. 11,400 zone is the near term support and traders should look to position on the long side," Amit Shah, Technical Research Analyst at Indiabulls Ventures said.