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Nifty, Sensex clock best day in 10 years after sharp cuts in corporate taxes

Indian shares notched their best day in more than a decade after the government announced deep cuts in corporate taxes to revive flagging growth in Asia’s third-largest economy.

Finance Minister Nirmala Sitharaman said the effective corporate tax rate would be lowered to around 25 per cent from 30 per cent and scrapped the minimum alternative tax for domestic companies.

Both the broader NSE Nifty and the benchmark BSE Sensex closed 5.3 per cent higher, finishing the week with gains of more than 1.5 per cent .

The rupee, which rose as much as 0.9 per cent to 70.68 against the dollar after the announcement, pared some gains to trade at 71.05 by 1015 GMT.

“The markets have been asking for a big fiscal stimulus and the government has delivered,” said Rusmik Oza, head of fundamental research at Kotak Securities in Mumbai.

Corporate earnings may see an almost 12 per cent jump in the next quarter for full tax paying companies due to the cut, and the markets can go up nearly 10 per cent , Oza said, adding that foreign investors would cheer these measures.

The tax break is the latest in a raft of measures from the government to lift the economy after growth hit a six-year low in the April-June period, mainly dragged by a slump in private investment.

“The measures announced by the finance minister this morning can be described as a ‘New Deal’ for the Indian economy,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services. “The psychological stimulus from this … will be higher than the fiscal stimulus.”

Economists believe that the cuts would make India competitive for investment, as it brings corporate tax rates on par with other Asian economies.

Reserve Bank of India Governor Shaktikanta Das said the moves augur “extremely well” for the economy.

However, Sitharaman said total taxation revenue loss due to the cuts would be about $20.5 billion, raising concerns that the government may not be able to meet its fiscal deficit target for 2019-20 at a time when tax revenue collections are already weak.

Speculation that the government may have to borrow more to meet its expenditure needs for the year saw the benchmark 10-year bond yield spike to a 2-1/2-month high of 6.87 per cent , before trimming some gains to trade at 6.8 per cent .

Governments and central banks around the world have been loosening monetary and fiscal policies to revive economic growth, hurt mainly by the ongoing U.S.-China trade war and weak consumer demand.

Stocks of automakers were among the top gainers on the local indexes. The Nifty Auto index jumped 9.9 per cent , with Eicher Motors Ltd and Hero MotoCorp Ltd climbing over 13 per cent each.

Top lenders ICICI Bank Ltd and HDFC Bank Ltd soared 8 per cent and 9 per cent , respectively, sending the Nifty Bank index up 8.3 per cent .

IT firms dipped as the rupee firmed, with Tata Consultancy Services Ltd slipping 1.7 per cent.

Source: Economic Times