Markets likely to react positively on Monday after FM's announcements

The markets are expected to react positively on Monday following the slew of announcements made by the Finance Minister Nirmala Sitharaman. 

The withdrawal of the higher tax surcharge on short-term and long-term capital gains made by foreign portfolio investors (FPIs) and domestic investors will boost sentiment, experts said. Besides, the Rs 70,000-crore capital infusion in state-owned banks and sops to stimulate automobile demand are a big positive, they said. 

Following the announcement, Nifty Futures derivatives traded on the Singapore Exchange were quoting at 10,925, 96 points, or 0.9 per cent, higher than Nifty’s last close of 10,829. 

“The financial markets are expected to respond well to the withdrawal of surcharge as now there will be more clarity on regulations for foreign investors. The move to infuse liquidity and boost consumption through up front bank capital recapitalisation should help stabilise the economy and prevent further growth erosion. Once banks pass on rate cut benefits, consumption should revive,” said Rashesh Shah, Chairman & CEO, Edelweiss. 

Stock prices of most firms have tumbled since the Budget, with the benchmark Nifty correcting 8.3 per cent amid a pullout of nearly Rs 25,000 crore by FPIs. Besides the Budget disappointment, global economic slowdown and rising geopolitical tensions have weighed on the market sentiment. 

“There could be a relief-rally on Monday. The government has made some key measures and promised more. However, there is a lack of clarity on whether the surcharge will remain on business income, which is confusing and disappointing. Also, the announcement comes in the backdrop of China announcing tariffs on the US and ahead of a key speech by the US Fed chief,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. 

On Friday, the benchmark Sensex rebounded nearly 600 points from day’s low to end with gains of 228 points, or 0.63 per cent, at 36,701 ahead of the press briefing by the finance minister. In the previous session, the benchmark indices had ended at six-month lows. “We are confident that the slew of measures revealed would act as a major stimulus for the economy and provide an all-round sentiment boost. With withdrawal of surcharge on key investor categories, inflows into the market is expected to improve,” said Vijay Chandok, MD & CEO, ICICI Securities. 

Market players say part of the FPI outflows seen in recent weeks could get reversed. Also, stocks in the banking, financial and automobile space are expected to be in focus on Monday’s trade. 

“FPIs were selling given the risk-off mode in the global market, which got enhanced due to higher surcharge post budget. FPIs have sold about Rs  25,000 crore since the budget, which can be reversed to a good level in culmination of other supportive measures like recapitalisation of state-owned banks, transmission of rate cut and auto,” said Vinod Nair, head of research, Geojit Financial Services.