GST Bonanza
Prime Minister Narendra Modi, during his address on Independence Day, promised next generation GST reforms by Diwali of this year, which would ease the tax burden on the masses and MSMEs.
The announcement has resulted in a sharp surge in India’s automobile stocks like Maruti Suzuki, Hero MotoCorp, and Ashok Leyland, on hopes of GST rate rationalisation. CNBC-TV18 has reported exclusively that the GST on two-wheelers can be cut down to 28% from 18%, while other categories could also see some revision. You can read more on that here.Hopes of a GST rate revision has also triggered a rally in India’s consumer durables stocks like Voltas, Blue Star, Amber Enterprises, all of which have moved as much as 10% higher. PG Electroplast, which recently cut its guidance for the full year, has also gained as much as 8%.
Rating Upgrade
The first trigger to move the markets higher came on Thursday itself, when ratings agency S&P upgraded India’s sovereign rating to BBB from BBB- and its short-term rating to A-2 from A-3 earlier, with a stable outlook. The last upgrade that India had received to its sovereign rating from S&P, was back in January 2007.
While the ratings upgrade announcement came during market hours on Thursday itself, uncertainties over the Trump-Putin meeting over the long weekend and the weekly F&O expiry, could have potentially kept a lid on the Nifty gains.
Likely FII Short-Covering
Despite the end to the six-week losing streak in the week gone by, the market continued to remain oversold, with FII short positions continuing to remain at 92%.
FIIs were net short at 1.83 lakh contracts going into today’s trading session. Multiple positive triggers may have prompted these institutions to cover some of their shorts, which could have added to this market rally.
India’s domestic mutual funds too, were sitting on cash of close to ₹2 lakh crore, or nearly 6% of the equity AUM, and some of that could have also been deployed into the markets today.
These positive announcements have potentially offset the threat of the Trump administration imposing another 25% tariff on imports from India after the talks with Russia yielded no results over the weekend, and the sixth round of trade talks between the two nations, scheduled for August 25, were postponed to a later date.
Brokerage firm Bernstein believes that despite the tariff uncertainties, and hopes of an earnings upgrade, the Nifty is likely to deliver high-single-digit returns over the next 12 months.
The Nifty 50 index is currently trading 375 points higher on Monday at 25,010, while the Sensex is up 1,100 points.
