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Bulls bridge trust deficit on surcharge rollback hopes

FPI selling has moderated in the last two sessions compared with the recent average.

ET Bureau|
Aug 09, 2019, 07.43 AM IST
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India VIX, which measures the market’s risk perception in the near term, fell 2 per cent to 16.41.
Mumbai: India’s stock benchmarks surged 1.7 per cent on Thursday — the highest single-day gain in three months — as traders liquidated some of their bearish bets amid reports that the government may roll back the higher surcharge on foreign investors that are registered as trusts in the country.

The higher levy was among the reasons for the near 10 per cent decline in the benchmarks since July, besides the ongoing crisis in nonbanking financial companies (NBFCs) and the economic slowdown.

The Sensex ended up 636.86 points, or 1.74 per cent, at 37,327.36 on Thursday and the Nifty ended up 176.95 points, or 1.6 per cent, at 11,032.45. The surge in benchmark indices occurred largely during the last hour of trade after reports that the higher tax may be removed. ET Now also reported that the finance ministry is studying the impact of withdrawing long-term capital gains (LTCG) tax after the three-year holding period. The yield on the benchmark 10-year bond rose three basis points to close at 6.4 per cent Thursday. A basis point is 0.01 percentage point.

The rupee gained 19 paise, or 0.27 per cent, to end at 70.70 a dollar.

“This (removal of higher surcharge) will lead to some improvement in sentiment and may have a slight impact on flows but it will not lead to a sustained revival in the market,” said Mahesh Patil, co-CIO, Aditya Birla Sun Life Mutual Fund. “Slowdown in the economy is a problem. Also there are issues plaguing the NBFC sector.”

Foreign portfolio investor (FPI) selling has moderated in the last two sessions compared with the recent average. FPIs offloaded Indian stocks worth Rs 437.4 crore on Thursday after selling nearly Rs 400 crore of equities in the previous session. Since July 1, FPIs have pulled Rs 22,232 crore out of local stocks with the average daily selling being Rs 770 crore. Domestic institutional investors (DIIs) bought Indian shares worth a net Rs 291.3 crore on Thursday.

Escalation in the US-China trade war, with Beijing allowing the yuan to sink to an 11-year low, and notso-dovish commentary from the US Federal Reserve has also soured market sentiment in recent weeks. A 35-basis point repo rate cut by the Reserve Bank of India on Wednesday had failed to move the needle on investor sentiment.

HCL Technologies, Tata Motors, Mahindra & Mahindra, Bajaj Auto and Reliance Industries ended up 4-6 per cent as the top gainers on the Sensex. IndusInd Bank and Tata Steel were among the few laggards on the 30-stock benchmark, ending down 0.8 per cent and 3.8 per cent, respectively.

The broader markets underperformed with the BSE MidCap and SmallCap index ending up 0.4 per cent and 0.7 per cent, respectively. India VIX, which measures the market’s risk perception in the near term, fell 2 per cent to 16.41.

Fund managers said moves to ease frayed investor sentiment could calm markets but the government needs to do more to cure the economic malaise.

“Steps such as allowing certain FPIs to invest directly by universal licence to invest, removal of LTCG, putting the plan to increase minimum public shareholding limit on the backburner will improve investor sentiment but a series of steps need to be taken for improvement of investor as well as business sentiment,” said Nilesh Shah, CEO, Kotak Mahindra Asset Management Co. “Business sentiment will improve with lower rates, easy availability of both debt and equity capital, reduced taxes, improved infrastructure and simpler regulations.”

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Markets may gain 2% on rollback of surcharge

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