(Bloomberg) -- Indian stocks rose for a second day on expectations that the government’s surprise $20 billion company tax cut will revive economic growth and boost company earnings.
The S&P BSE Sensex jumped 2.8% to 39,909.03 at the 3:30 p.m. close in Mumbai, while the NSE Nifty 50 Index advanced 2.9%. Both gauges surged 5.3% on Friday, marking their biggest gain since May 2009, after the corporate tax rate was lowered to 22% from 30%.
Analysts increased earnings estimates for both measures by as much as 10% to factor in the lower tax burden. The government’s move follows a series of other measures unveiled over the past month aimed at boosting consumer demand and attracting investment.
The tax cuts have “significant positive implications for corporates’ profitability, broader economy and market valuations,” Nomura Holdings Inc. strategists including Saion Mukherjee wrote in a note. “We expect the strong monetary stimulus in the near-term to result in a cyclical recovery followed by investment/exports-led growth in the medium term.”
The reduction has led to “earnings upgrades, hence we believe that Nifty, Sensex are set for a higher trajectory, and a rally up to 12,500 and 42,000 respectively is likely in the next 3-6 months,” Stewart & Mackertich Wealth Management Ltd. analysts including Sarthak Mukherjee wrote in a note on Friday. Foreign investors will probably shift their negative stance on Indian equities, he said.
Thirteen of 19 sector sub-indexes compiled by BSE Ltd. rose, led by gains of more than 5% in gauges of capital goods, financial and industrial stocks.Sixteen of the 31 Sensex members and 32 of the 50 Nifty companies advanced.Bajaj Finance Ltd. was the top gainer after surging as much as 9.8% to a record high.Technology stocks including Infosys Ltd. were among the top decliners.
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