The market snapped its three-month losing streak and rallied 4 percent in September, which turned out to be an eventful month with the government surprising everyone with a corporate tax cut.
The BSE Sensex gained 1,334.54 points to end the month at 38,667.33 and the Nifty climbed 451 points to 11,474.45 after falling 6 percent and 7.5 percent, respectively, in the previous three months amid slowdown worries, weak earnings, US-China trade tensions, etc.
The broader markets also gained momentum. BSE Midcap and Smallcap indices jumped 5 percent each after a double digit fall of 10.8 percent and 15.7 percent, respectively, in the previous three months.
To address recession worries, which brought down Q1FY20 GDP growth to a six-year low of 5 percent, and forced the Reserve Bank of India to lower the growth projection to 6.9 percent from 7 percent, the government cut the corporate tax to 25.17 percent from 30 per cent and came up with a special tax rate of 15 percent (without any incentives) for new manufacturing companies.
These steps instantaneously lifted the sentiment, more than 60 percent of BSE 500 stocks showed positive returns and of which top 150 posted double-digit returns in September.
Out of these 150 scrips, 30 stocks rallied between 20 percent and 60 percent. These included Shipping Corporation of India
, Sterlite Technologies
, ICICI Securities
, Bombay Burmah Trading Corporation
, Adani Green Energy
, Shankara Building Products
, Deepak Fertilizers
, GIC Re
, AstraZeneca Pharma
, Bajaj Finance
and Page Industries
Note: It is just an interpretation of data, and not a recommendation.
In contrast, J&K Bank, United Bank, Corporation Bank, Magma Fincorp, Indostar Capital Finance, SPARC, ITD Cementation, Zee Entertainment, Yes Bank, Indiabulls Ventures, Indiabulls Real Estate, Somany Ceramics, Coffee Day Enterprises, Indian Bank, Eveready Industries, Indiabulls Housing Finance fell 19-43 percent.
Corporate governance, asset quality concerns, high debt burden were among the reasons for the deep correction in some of these stocks.
Auto, bank, capital goods, consumer durables, energy, FMCG and metal were key gainers among sectors, rising 6-11 percent. Healthcare, IT and realty were underperformers, falling 3 percent each in September.
All these sectoral indices had fallen 3-21 percent in the previous three months, except IT which had gained 2 percent.
Experts expect the September momentum to continue in the coming months, but ask investors to read the RBI policy statement and management commentary after September quarter earnings as these will give have a bearing on the market.
"Post the government’s big-bang announcement of corporate tax reforms, the market has been buoyant. Forthcoming Q2 results season is highly important, particularly the management commentaries stating their take on-demand environment and their plans for the excess cash flows on account of lower tax. The market will wait for this clarity before making a decisive new high," Vineeta Sharma, Head of Research at Narnolia Financial Advisors, told Moneycontrol.
Romesh Tiwari, Head of Research at CapitalAim, said, "To hit the record highs by Diwali, we need to be certain that the revival in the real economy of India has started. I will wait for growth projections by the RBI and other institution after the big booster tax cuts by the finance ministry. If the growth projection by RBI at the end of this week improves and RBI cut rates by at least 25 bps, the Nifty can cross 12,000 by the end of October."