Sensex reclaims 40,000-mark on tax rejig hope, strong earnings

The benchmark Sensex had hit the key 40,000 level for the first time on May 23, 2019 and closed above 40,000 for the first time on June 3.

On Wednesday, after hitting a high of 40,178, the 30-share index ended 220.03 points, or 0.55 per cent, higher at 40,051.87. Similarly, the broader NSE Nifty jumped 57.25 points or 0.49 per cent to close at 11,844.10.

Nearly five months after the BSE Sensex hit the 40,000 level for the first time, the index on Wednesday rallied 220 points to close above the 40,000-mark again, as expectations of tax sops for equity investors, more reforms from the government and encouraging corporate earnings boosted the sentiment across the board.

The benchmark Sensex had hit the key 40,000 level for the first time on May 23, 2019 and closed above 40,000 for the first time on June 3.

The Sensex had gained 582 points on Tuesday. The sentiment improved further as the market speculated on the possibility of the government scrapping the dividend distribution tax and reviewing other levies such as long term capital gains tax (LTCG) and securities transaction tax (STT). Further, encouraging earnings delivery from bluechips and meaningful contribution from the corporate tax cut to profits coming through also boosted market mood.

“The market is positive on expectation of fresh reforms from the government and change in the long-term capital gains tax in the future. After a long time, the market is seeing incentive to invest in equity due to reduction in taxation producing better than expected Q2FY20 results, providing a hope that earnings growth will revamp further in H2FY20.

Results are adding fuel to the market despite weakness in other global markets ahead of the Fed interest rate decision and US-China trade talks agreement,” said Vinod Nair, head of research, Geojit Financial Services.

Ajay Menon, MD & CEO, Motilal Oswal Financial Services, said, “The sentiment got a boost on hopes that the government is likely to cut long term capital gains tax, dividend distribution tax and the securities transaction tax.

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“Moreover, improved auto sales growth during the festival sessions, good quarterly results and stable oil and rupee rate have added fuel in the market. Global markets are witnessing caution ahead of outcome of US Fed policy meeting today. Markets hope that the US Fed will cut interest rate by 25 bps.”

SBI, TCS, ITC, Bharti Airtel, Sun Pharma, Infosys and Bajaj Auto rose up to 3.4 per cent.

Yes Bank, Maruti, IndusInd Bank, ICICI Bank and Bajaj Finance fell up to 2.41 per cent. Sectorally, BSE IT, teck, oil and gas, FMCG, capital goods, utilities, telecom and energy indices gained up to 1.47 per cent.

However, consumer durables, realty, metal and auto indices fell up to 0.98 per cent. Broader BSE midcap and smallcap indices ended up to 0.65 per cent higher.

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On the global front, markets awaited cues from the US Federal Reserve’s policy decision.

Foreign portfolio investment is expected to pick up if the US Fed cuts the rate again. Bourses in Shanghai, Hong Kong, Seoul and Tokyo ended on a negative note amid reports of a possible delay in the US-China trade deal.