MARKETS CHEER THE TAX CUTS - HDFC Securities
The Sensex and the Nifty did an Indian rope trick rising 1,921 and 569 points respectively on Friday after the FM announced major corporate tax cuts. In one deft move she has made India an attractive destination for new manufacturing companies and increased the post tax Nifty earnings by 10%.
The Banks and the FMCG companies are immediate clear winners as they pay the highest tax, The tax rate of 15% for new manufacturing companies will attract capital investments, the fruits of which we will see only in the next few years.
The move came as a pleasant surprise for the bulls after seeing the FM take only baby steps to bolster the confidence of the business and industry. The shorts in the Bank Nifty scampered to cover their positions, while new longs were created in the Nifty.
Cheering the markets further this morning will be the positive bonhomie created in the Indo-American relationships by ‘Howdy, Modi’ event on Sunday, which had the largest gathering ever for an elected foreign leader visiting the US, other than the Pope.
A study of the past 20 years reveal that such sharp moves, what we saw on Friday, are not a one way ticket to the moon.
The 5.32% rise in the Nifty on Friday was its 21stlargest rise in the last 20 years. Of the 20 such other instances in the past, the Nifty did not break the low seen prior to such a move in only 4 instances. In other words 16 of such 20 moves were a failure
The Nifty is likely to open about 140 points higher this morning, further extending gains for traders who have carried over longs. We believe traders should take this opportunity with both hands. Book partial profits in the opening trade and keep a trailing stop loss for the rest.
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