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A man (R) watches a large screen displaying India’s benchmark share index on the facade of the Bombay Stock Exchange (BSE) building in Mumbai, India, August 25, 2015. Volatile global markets got some respite from the latest blood-letting on Tuesday as bargain hunters nudged up Asian and European stocks, though China, at the center of the rout, was smashed again. REUTERS/Shailesh Andrade – RTX1PJMI Photo Credit: Reuters

Stocks climb as investors cheer tax sops, higher spending

01 February, 2017

Indian stocks jumped to over three-month highs on Wednesday after finance minister Arun Jaitley proposed measures to boost spending in infrastructure sectors and rural areas but broadly stayed fiscally prudent in his budget for 2017-18.

The 30-stock BSE Sensex opened flat but gained after the budget announcement to end 1.8% higher at 28,141.64. The broader 50-share NSE Nifty also rose 1.8%. The ascent was led by real estate, banks and automobile stocks.

The rise was broad-based. Nine of 11 sectoral indexes ended in the green; healthcare and telecom being the exceptions. More than 1,900 stocks ended higher while 915 companies fell.

The budget is well-balanced, fiscally responsible and emphasizes on capital spend than doling out incentives, said Nilesh Shah, managing director and CEO at boutique money management firm Envision Capital.

“The budget hints at growth against a backdrop of weak global conditions. The budget proposals aim to leave more money in the hands of lower-income groups. Besides, there are no fresh levies such as service tax,” Shah said.

Jaitley announced a couple of proposals that particularly benefit foreign investors. In a surprise move, he said the government will abolish the Foreign Investment Promotion Board. The FIPB is an inter-ministerial agency that clears foreign investment proposals and its scrapping is being seen as cutting red tape to attract investors.

The budget also offered a tax respite to foreign portfolio investors by exempting category I and II FPIs—which include foreign central banks, sovereign wealth funds and pension funds—from the purview of indirect transfer provisions.

Jaitley said indirect transfer provisions will not apply also in case of redemption of shares outside India as a result of or arising out of sale of investment in India which is chargeable to tax in India.

FPIs net purchased Rs 93 crore ($13.88 million) worth of shares on Wednesday, stock-exchange data showed.

Analysts said that rural development and the infrastructure sector received a strong push in the budget. Besides, no changes to capital gains tax for listed stocks and a clarification on non-applicability of indirect transfer rules to FPIs and alternative investment funds acted as a big relief to the investors. 

“The fiscal deficit target and status quo on the treatment of long-term capital gains are two major positive factors,” said. Vaibhav Sanghavi, co-CEO at Avendus Capital Alternate Strategies. “The emphasis on digitisation, affordable housing, scrapping of the FIPB and exemption for FPIs are other positives,” he said.

Auto stocks

Automobile companies were among the biggest gainers, enthused by higher spending in rural areas and the infrastructure sectors. Mahindra & Mahindra Ltd, the nation’s biggest tractor maker, rose 4.6%.

Maruti Suzuki India Ltd was the top performer among frontline stocks. India’s No.1 car maker touched a record high on Wednesday after it reported a 27% increase in sales for January to 1.45 lakh units.

Tata Motors Ltd and two-wheeler maker Hero MotoCorp Ltd were the other major gainers.

Bank stocks

In the budget, Jaitley proposed to increase the limit for banks to claim deduction under non-performing assets (NPAs) to 8.5% of their total income from 7.5%. This will reduce banks’ tax liability. Indian banks’ NPAs doubled to Rs 6.68 trillion as on 30 September 2016 from a year earlier, Reserve Bank of India data show.

Jaitley also proposed to allocate Rs 10,000 crore to recapitalise state-run banks. Although this is lower than last year’s budgeted Rs 25,000 crore, it will still give some cushion to state-run banks reeling under a growing pile of bad loans.

ICICI Bank, the biggest private-sector lender, rose 4.4%. State Bank of India, the country’s largest lender by assets, surged 4%. Axis Bank rose 2.15% and HDFC Bank climbed 1.5%. The BSE Bankex index was up 2%.

Energy, real estate

Energy stocks advanced as the government proposed integration of state-run oil and gas companies into one behemoth to enable such an entity to make better business decisions, compete with large energy corporations and make higher capital investments.

“Possibilities of such restructuring are visible in the oil and gas sector,” Jaitley said in his budget speech.

Gas transporter GAIL India Ltd gained 3.76%, while Hindustan Petroleum Corporation Ltd, Indian Oil Corporation Ltd and Bharat Petroleum Corporation Ltd rose 1.7-3.5% higher. The BSE Oil & Gas index was up 1.5%.

Shares of real estate companies gained as Jaitley announced incentives for affordable housing and granted infrastructure status to such projects.

DLF Ltd surged 5%, Godrej Properties Ltd advanced 4.5% and Oberoi Realty Ltd gained 4.2%.

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Stocks climb as investors cheer tax sops, higher spending

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