Sensex Ends 1,075 Points Higher; Capital Goods and Banking Stocks Witness Huge Buying

Mon, 23 Sep Closing

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Indian share markets extended Friday's rally by moving sharply higher today. The BSE Sensex rose as much as 1,426 points intraday to 39,441 at day's high, adding to Friday's 1,921-point rally. Meanwhile, the NSE Nifty rose over 400 points to 11,695.

Good news on the US-China trade front and positive cues from global peers further boosted the mood back home.

Buying interest was also seen as many brokerages raised their earnings estimates for India Inc and Sensex and Nifty target after the corporate tax cut.

On the sectoral front, gains were largely seen in the capital goods sector and banking sector.

At the closing bell, the BSE Sensex stood higher by 1,075 points (up 2.8%) and the NSE Nifty closed higher by 329 points (up 2.9%).

The BSE Mid Cap index ended up by 3.1%, while the BSE Small Cap index ended the day up by 2.7%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood down by 0.8% and the Nikkei was trading up by 0.2%. The Shanghai Composite was trading down by 1%.

The rupee was trading at 70.93 to the US$ at the time of writing.

Note that on Friday, the government slashed corporate tax rates in a move designed to boost economic growth and revive private investment.

Will Finance Minister Nirmala Sitharaman's bold tax reforms bring back foreign investors to the Indian stock markets?

Let's have a look at the monthly foreign investor inflow trend over the last five years.

Will Foreign Investors Make a Comeback Now?

During the entire period, the net foreign investor inflows into Indian equities are worth Rs 1,182.8 billion. For a five-year period, that's not a significant amount at all. The reason being that, foreign investors have also done some heavy selling during this period.

Foreign investors have been net sellers in 27 out of the last 61 months. Even in the ongoing financial year, foreign investors have been net sellers.

So, will that change after the latest announcement by the Finance Minister?

Research analyst at Equitymaster, Ankit Shah believes that corporate tax cuts have the potential to revive the business and investment climate in the economy.

In his premium newsletter Insider, Ankit focuses on cherry-picking the best investing opportunities. Even after the jump in stock prices on Friday, many stocks are still trading below their best buy prices.

He believes, the best strategy in the current market is to accumulate quality stocks in a staggered manner as and when prices are attractive.

In news from the IT sector, shares of IT companies were under pressure today with the S&P BSE IT index falling over 3% in the intra-day deals in an otherwise strong market.

Selling pressure was seen amid expectations of a weak growth in tech spends in BFS clients in US and European geography due to trade war concerns, uncertainty on central bank policy and interest rates.

Further, Brexit-related uncertainty and strengthening rupee were among other reasons for the fall in IT stocks.

Reports also stated that the new taxation rule will be neutral event for the Indian IT companies at the consolidated level, as US and UK rates are at 21% and 18%, respectively.

The current blended effective tax rates of 22-27% are a combination of higher tax rates paid outside India and much lower tax rates paid in India. IT companies thus pay lower than 25% tax rates in India and the cuts announced Friday will not lower their overall tax rates.

Shares of Infosys tanked 8% to Rs 742 in early trade today, logging the biggest single day fall in two years. Meanwhile, Tata Consultancy Services (TCS) fell 3%.

HCL Technologies, Wipro and Tech Mahindra fell in the range of 1% to 3%.

Moving on, shares of Thomas Cook India witnessed selling pressure today after the Ministry of Corporate Affairs (MCA) said it is investigating the travel company in relation to a 'suspicious' money transaction with a Delhi-based forex trader.

The ministry's Western Regional Director has commenced inspection of the world's oldest travel firm.

However, the company denied the report, saying it has "received no intimation from MCA and has no existing relationship with Aarush Forex Pvt."

In May 2012, Canadian investor Prem Watsa Fairfax Financial Holdings had acquired Thomas Cook group's 77% stake in its India operations for around US$ 150 million.

Its arm, Fair bridge capital paid Rs 50 per share of Thomas Cook India for a total of Rs 8.2 billion. At that time, the offer was at an 18% discount to its closing price of Rs 61.

In other news, the company in a statement said that the collapse in Britain's Thomas Cook will not have any impact on Thomas Cook India which is a completely different entity.

Thomas Cook UK ceased to be a promoter in the company post the transfer of its entire stake to Fairfax.

UK's Thomas Cook said on Friday it needs to raise £200 million in funding to avoid a collapse and had approached the British government for a bail-out.

Thomas Cook India share price ended the day down by 1%.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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