Equities surged by more than 1% on Wednesday, led by gains in oil & gas companies after the government slashed the windfall tax on crude petroleum producers and reduced taxes on other fuels.
RIL gained 2.5% to Rs 2,501 and contributed 184 points to the Sensex surge, while ONGC and Oil India were up 4% and 5.8% to Rs 132.5 and Rs 197.5, respectively. IT majors such as Tech Mahindra, HCL Tech, TCS and Infosys were among the top Sensex gainers, rising between 1.6% and 3.8%.
The government levied fresh taxes on export of petrol and other fuels as well as domestic sale of crude oil on July 1 amid the surge in global prices, with a plan to review the taxation levels every fortnight.
The Sensex ended the day with gains of 1.15% to 55,397 points while the Nifty jumped 1.1% to 16,520 points. This was the fourth consecutive day of gains for the indices.
“Weakness in the dollar index is helping generate a risk-on environment. Domestically, the move by the government to reduce tax on windfall gains for oil and gas companies is helping heavyweights like RIL and ONGC to outperform,” said Naveen Kulkarni, chief investment officer, Axis Securities.
FPIs net sold shares worth $1 billion in July, with the pace of selling easing off a bit with the dollar rally losing steam. In the year to date, FPIs have sold shares worth $29.6 billion. DIIs have purchased shares worth $1 billion this month, taking their YTD buying to $31.2 billion.
Global markets were positive as healthy corporate earnings added to the investor confidence. Overnight, Dow Jones, S&P500 and Nasdaq surged about 3% each. Asian markets gained on Wednesday, with the Nikkei rising 2.7% and the Hang Seng 1.1%. FTSE100, CAC 40 and DAX were trading up between 1% and 3%.
“We believe that there is a definite reduction in market volatility in the last couple of weeks, but one needs to be wary of risk emanating from Europe, especially with issues related to resumption of gas supplies to Europe from Russia and the corresponding effect on growth rates if the gas supply is not restored. We advise investors to gradually increase allocation to equity, especially since FII selling pressure has significantly ebbed in recent times,” said Kulkarni.
So far this month, the Sensex and the Nifty have advanced 5.5% and 5.6%, respectively. “Markets have witnessed buying interest over the last few sessions on the back of signs of inflation peaking out and the earnings season progressing well, indicating that companies are managing the raw material inflationary pressure pretty well despite the full-blown impact of high commodity prices this quarter. This has provided relief to investors that the corporate earnings might not be impacted to the extent feared,” said Siddhartha Khemka, head – retail research, Motilal Oswal Financial.
The market undertone is likely to remain positive, wherein the recent unfilled gap of 16,360-16,490 is expected to provide cushion to any minor correction. The support zone for the Nifty is seen around 16,200 levels.
Markets will look for cues from the ECB’s monetary policy meet on Thursday and the US Fed meeting next week.