Mumbai: Indian markets hit a nearly two-month high on Thursday as investors expect the government to achieve its fiscal deficit target for the current fiscal after Union finance minister Arun Jaitley said tax collection will exceed budget estimates.
Emerging market investors also took comfort from the minutes of the US Federal Reserve’s December meeting, which revealed that members were concerned about a strengthening dollar.
BSE Sensex closed up by 245.11 points, or 0.92%, to 26,878.24, while the Nifty 50 closed higher by 83.30 points, or 1.02%, to 8,273.80. However, during the day’s trading, Sensex rose by as much as 1%, or 266.75 points, to 26899.88 points, while Nifty gained as much as 1.1% or 88.4 points to 8278.90 points.
The Central government will exceed its budget estimates for both direct and indirect tax collections this year, Jaitley said on Wednesday. The increase in tax revenues is expected to counter the shortfall in divestment receipts and help the government achieve its fiscal deficit target of 3.5% of gross domestic product in 2016-17.
India is also gearing up for its annual budget and investors expect that the bold measures taken this year will also boost the investment sentiment.
“Fiscal discipline is expected to be adhered to next year as well, even as the pace of fiscal tightening might slow. Bold measures to boost consumption are expected though an outright reduction in personal income tax rates does not seem likely,” Radhika Rao chief economist of DBS Bank said in a note to its investors.
“The other focus areas could be tax reforms, steps to support agricultural output, accelerate usage of digital payment channels, financial inclusion efforts and step-up capital spending,” Rao added.
On Wednesday night, the Fed minutes showed that the Central bank was concerned about a strengthening dollar, and that more fiscal stimulus in the US could raise demand above sustainable levels.
Some members noted that a more expansionary fiscal policy in the world’s largest economy will increase the possibility of “somewhat tighter monetary policy than currently anticipated”.
That resulted in the dollar weakening against a basket of its trading partners.
Among local indices, the BSE metal index jumped 3.2%, the maximum gains in two months, the basic materials index gains 2% while BSE Oil & Gas index rose 1.6%.
However, IT stocks were under pressure ahead of the December quarter earnings. TCS fell 1.5%, Infosys 0.6%, HCL Technologies Ltd fell 1.8%, Tech Mahindra Ltd by 2%.
Earlier this week, Infosys Ltd and Wipro Ltd warned employees about rising threats to the IT services industry.
Vishal Sikka, chief executive officer, Infosys, said in a letter to employees, “The world around us seems ever more influenced by the baser instincts and tendencies.” A note by Azim Premji, chairman, Wipro, spoke of “forces that want to shape the world into a place of exclusion, conflict and suspicion