Sensex hits 2-year high, eyes Rs 20k
MUMBAI: The finance minister's resolve to put the economic reforms process back on track by announcing drastic changes to the controversial General Anti-Avoidance Rules (GAAR) was cheered by Dalal Street on Monday, with the sensex and nifty both rallying to two-year peaks. Brokers and dealers said the revised GAAR provisions would pacify foreign investors as this brings in clarity to the taxationrule. The day's gains, which added about Rs 80,000 crore to investors' wealth, was also aided by easing inflation figures, which dropped to a three-year low, that in turn raised chances of a cut in rates by RBI later this month.
The session started with the sensex opening marginally higher, but a lower-than-expected inflation number started the rally, which later got a boost from the finance minister 's statement that the government was deferring implementation of GAAR to April 2016. The sensex finally settled at 19,906, up 243 points while nifty closed 73 points higher at 6,024. The rally on the Street got a boost when Chidambaram clarified that FIIs and NRIs not intending to take advantage of tax treaties, would remain outside the purview of this law. The finance minister also said that the government was working to renegotiate its tax treaty with Mauritius, one of the main centres from where companies aiming to avoid double taxation in India are established.
"The biggest positive for the market is that the revised GAAR provisions brings in clarity about these provisions, something that was missing earlier," said Rashesh Shah, chairman and CEO of the Edelweiss Group. "In addition since its deals with tax avoidance, so genuine business entities will not be affected, which is also a big positive for us," Shah said.
Market players also feel that the clarification and changes to GAAR would bring in more foreign funds to invest in India. "Our interactions with FIIs give us this idea that they are happy with the way the government responded to their concerns," said Gautam Trivedi, MD & head of equities-India, Religare Capital Markets. "It also indicates that there is clear resolve from the finance minister to get the reforms process to continue," Trivedi said. In less than two weeks in the new year, FIIs have net pumped in nearly $1.8 billion into the market, and institutional players believe this can only increase on GAAR-related clarifications.
The day's session also got a boost after the wholesale price index (WPI) for December showed a marginal decline to 7.18% compared to market expectation of 7.4%. Also, the October WPI inflation number was revised downward, a reversal from the last few months' practice of upward revision. All these raised the hopes of investors that RBI now has more reasons to cut key policy rates, that is repo (the rate at which banks borrow funds from the central bank), which would lead to lower rate of interest in the economy. This lifted bank and finance company stocks, withHDFC up 1.9% at Rs 825 and ICICI Bank closing 1.7% higher at Rs 1,185.
IT stocks too rallied on Monday, a rub-off from Friday's strong result by sector major Infosys. The stock gained 3.5% to add to its 17% gain on Friday and close at Rs 2,807, while TCS was up 2.1% at Rs 1,334. The IT index on BSE was up 2.6%.
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MUMBAI: The finance minister's resolve to put the economic reforms process back on track by announcing drastic changes to the controversial General Anti-Avoidance Rules (GAAR) was cheered by Dalal Street on Monday, with the sensex and nifty both rallying to two-year peaks. Brokers and dealers said the revised GAAR provisions would pacify foreign investors as this brings in clarity to the taxationrule. The day's gains, which added about Rs 80,000 crore to investors' wealth, was also aided by easing inflation figures, which dropped to a three-year low, that in turn raised chances of a cut in rates by RBI later this month.
The session started with the sensex opening marginally higher, but a lower-than-expected inflation number started the rally, which later got a boost from the finance minister 's statement that the government was deferring implementation of GAAR to April 2016. The sensex finally settled at 19,906, up 243 points while nifty closed 73 points higher at 6,024. The rally on the Street got a boost when Chidambaram clarified that FIIs and NRIs not intending to take advantage of tax treaties, would remain outside the purview of this law. The finance minister also said that the government was working to renegotiate its tax treaty with Mauritius, one of the main centres from where companies aiming to avoid double taxation in India are established.
"The biggest positive for the market is that the revised GAAR provisions brings in clarity about these provisions, something that was missing earlier," said Rashesh Shah, chairman and CEO of the Edelweiss Group. "In addition since its deals with tax avoidance, so genuine business entities will not be affected, which is also a big positive for us," Shah said.
Market players also feel that the clarification and changes to GAAR would bring in more foreign funds to invest in India. "Our interactions with FIIs give us this idea that they are happy with the way the government responded to their concerns," said Gautam Trivedi, MD & head of equities-India, Religare Capital Markets. "It also indicates that there is clear resolve from the finance minister to get the reforms process to continue," Trivedi said. In less than two weeks in the new year, FIIs have net pumped in nearly $1.8 billion into the market, and institutional players believe this can only increase on GAAR-related clarifications.
The day's session also got a boost after the wholesale price index (WPI) for December showed a marginal decline to 7.18% compared to market expectation of 7.4%. Also, the October WPI inflation number was revised downward, a reversal from the last few months' practice of upward revision. All these raised the hopes of investors that RBI now has more reasons to cut key policy rates, that is repo (the rate at which banks borrow funds from the central bank), which would lead to lower rate of interest in the economy. This lifted bank and finance company stocks, withHDFC up 1.9% at Rs 825 and ICICI Bank closing 1.7% higher at Rs 1,185.
IT stocks too rallied on Monday, a rub-off from Friday's strong result by sector major Infosys. The stock gained 3.5% to add to its 17% gain on Friday and close at Rs 2,807, while TCS was up 2.1% at Rs 1,334. The IT index on BSE was up 2.6%.
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