In the past week, we have seen benchmark indices of Indian stock markets gain. BSE's Sensex has been beating its own previous records of all-time highs, while NSE's Nifty crossed the 12,000-mark this week for the first time since July.
Here are 4 possible factors causing a renewal of positivity in the Indian stock markets:
1. Corporate tax rate cut
The surprise corporate tax rate cut announcement made in September majorly factored-in to change it into a buyer's market for domestic as well as foreign investors, surging stock prices. It was a game changer.
The disappointing atmosphere in the stock markets changed on 20 September, when FM Nirmala Sitharaman announced a cut in corporate income taxes from 30 percent to 22 percent. Including additional levies, the effective rate would be around 25.2 percent, for those who wish to opt for the new rates and give up on carrying-forward of losses benefit.
Possibility of higher profitability from corporate tax rate cuts is good news for investors of Indian companies.
2. Increased inflows from FIIs and mutual funds on government reforms
In the Budget 2019 by the then newly appointed FM Sitharaman, presented in the month of July, she proposed an increase in surcharge on FPIs (Foreign Portfolio Investors), spooking them. The month of July and August saw a massive withdrawal of funds from Indian equities by foreign investors.
The decision to impose enhanced surcharge was revoked by the ministry in August. This move along with packages for the banking sectors (including mergers of PSUs), automobile sector and most recently the real estate sectors, has lifted the investor sentiment.
Mutual funds and foreign institutional investors poured thousands of crores in the Indian markets in the month of September and October on booster sentiment.
Expectations of an increase in company profits from tax cuts and easing global risk sentiment also helped.
3. US-China trade negotiations
Towards the end of August, running into the start of September, intensifying spat between the US and China over their trade negotiations, caused traders to seek refuge in gold and others securities, away from riskier assets like equities.
Of late, there has been a drastic improvement in concerns towards a global recession, thanks to statements from the US and China that indicate that the countries are close to signing a trade deal.
On Thursday, US Stock index futures jumped after news reports said that the two largest economies in the world have agreed to cancel additional tariffs imposed on each other.
Their trade war, that started in 2018, caused major turmoil in the capital markets as concerns over a possible recession grew. Tit-for-tat tariffs worth billions of dollars were imposed. The Indian rupee had also seen its new all-time low.
In the last couple of weeks, hopes of an interim trade deal, and US Fed Reserve's statement indicating that that American economy's condition isn't as bad as earlier anticipated have kept the sentiments of equity markets around the globe, positive.
Gains in the US and other Asian stock exchanges are often reflected in Indian markets as well.
4. Quarterly earnings season
Despite paying the full tax rates, September-ended-quarter results have been positive for some big players. Stocks of many high-quality stocks have rallied by 15 to 20 percent since the tax cut announcement, on hopes of enhanced profitability in the current and upcoming quarters.
Stocks like RIL, Bajaj Finance, HUL, Bajaj Auto, Asian Paints, touched new 52-week highs in the past few days, not only taking their valuations to new levels but enhancing investor wealth, attracting buyers.
While, the large-cap indices rally on foreign investors' investment inflows, mid-caps are also climbing.
Further, the contributors to gains in Sensex have changed. Post results of good performance in the previous quarter, ICICI Bank, HDFC Bank, HDFC and RIL contributed greatly to the index's rally than IT stocks.