The Indian and global stock markets turned bullish starting Thursday. The revived optimism in equity following concerns over an economic slowdown was from a varied range of local and international events that took place in the last 2 days.
1. Possible withdrawal of surcharge on FPI
The stock markets cheered after an Economic Times report citing government sources said that the Finance Ministry is looking at measures to revive the capital markets including withdrawal of higher surcharge on Foreign Portfolio Investors (FPIs).
The report said that the Ministry had a discussion with the Prime Minister's Office and calculated that the revenue forgone from removal of this surcharge would only amount to Rs 400 crore. On this consideration the surcharge may be lifted.
In the Budget 2019, Finance Minister Nirmala Sitharaman had proposed a higher surcharge on those earning over Rs 2 crore.
Since the tax implications cover individuals or HUF or association of persons or body of individuals (domestic or foreign), the tax impact on profit from sale of equity rose to 21.3 percent from 18 percent for short-term capital gains, and to over 14 percent from 12 percent for long-term capital gains.
It was said that the higher surcharge would impact FPI who fall in the individuals, associations of persons or trust and not those in the corporate structure.
FPIs through their law firms had conveyed to the Finance Ministry that it would be impractical for them to convert trusts into companies.
Following the announcement of the higher surcharge, the month of July saw a massive withdrawal of overseas investment from the Indian stock markets. Sensex and Nifty saw their worst July performance in 17 years.
2. Possible withdrawal of LTCG
The ET report also said that the authorities will reconsider the long-term capital gains (LTCG) tax. It is studying the impact of withdrawing LTCG on equities after holding for 3 years.
The LTCG was reintroduced on equity in Budget 2018 on gains that cross Rs 1 lakh per annum, hurting interest of domestic investors.
3. Incentives for NBFC and auto sector woes
On 7 August, during the monetary policy review, RBI announced a central payments fraud registry and increased the exposure limits for banks to lend to single NBFCs to 20 percent.
Further, to revive the NBFCs, that have been suffering from a liquidity crunch post IL&FS crisis, the government is likely to provide a relief package, a Moneycontrol report said.
Further, the Finance Ministry met representatives of the automobile industry to understand their issues and may make announcements in favour of the vehicle manufacturers to boost sales.
4. Sitharaman meets industry leaders
FM Nirmala Sitharaman met with corporate leaders on Thursday to discuss ways to deal with the economic slowdown prevailing in the Indian economy. A stimulus package of over Rs 1 lakh crore was recommended by the industry representatives to revive the investment cycle.
5. Japan GDP shows signs of revival
Asian stocks were trading higher in the morning as Japan reported its third straight quarter of expansion in growth. Its economy for the June-ended quarter grew at an annualized rate of 1.8 percent according to government data released on Friday.
GDP (gross domestic product) gained 0.4 percent, which was higher than estimated by many economists.
Tokyo's Nikkei index closed 0.44 percent higher at 20,684.82.
6. China’s inflation data
While stocks in China did not show any recovery amid yuan's devaluation and the ongoing trade war, China's consumer price index rose 2.8 percent in July. The results was better than expected.
Data from the National Bureau of Statistics showed that the CPI grew at the fastest pace in 17 months.
Yuan's daily midpoint remained above 7 per US dollar for the second straight day, however, the reference point of 7.0136 yuan per dollar was stronger than estimated, providing a reassurance to the investors that China was not seeking an all-out currency war.
Hong Kong's Hang Seng Index closed 0.69 percent lower at 25,939.30.
7. Wall Street’s gain on Thursday
The S&P 500 index rose 54.11 points, or 1.88 percent to 2,938.09, its best day in over two months aided by a jump in technology shares as bargain hunters stepped in to buy beaten down stocks.
The Dow Jones Industrial Average climbed 371.12 points, or 1.4 percent to 26,378.19, mainly aided by a surge in tech company stocks.
The Nasdaq composite, that constitutes majorly technology stocks, gained 176.33 points, or 2.2 percent, to 8,039.16.
Gains in American stock markets are often reflected in Asian stocks the following day.