Standout performance: Corporation tax cuts spur gains for domestic markets

On September 20, Finance Minister Nirmala Sitharaman announced a reduction in the country's effective corporation tax rate from around 35% to 25%

India is the best-performing market in the past one month, having gained nearly 8 per cent. Most global markets are up an average 2 per cent during this period. The gains in the domestic markets are on account of a surprise reduction in corporation tax. On September 20, Finance Minister Nirmala Sitharaman announced a reduction in the country's effective corporation tax rate from around 35 per cent to 25 per cent. The one-month return made by the benchmark Nifty is exactly the gain analysts expect in Nifty earnings following the tax cut. In other words, after adjusting to the Nifty earnings boost, the markets are flat over a one-month period, potentially underperforming the world markets. On a month-to-date basis as well, India is among the underperformers. So far this month, most global markets have delivered positive returns, thanks to the improvement in risk appetite on the US-China trade deal optimism. India’s underperformance is due to the correction seen during the start of the month on fears of the health of the financial sector. In the past six sessions, the Indian markets have managed to catch up. 
 

Whether the ongoing rally will sustain will depend on how the earnings season pans out.