Street signs: Corporate tax cut, domestic hedge funds seek relief, and more

Even after the surprise reduction in corporate tax, select large-caps have been outperforming the broader markets this year

Positive Nifty bias in October series  

Nifty futures rollovers stood at 73 per cent, above the three-month average. The rollover figure hints that longs formed in the end of the last series have been rolled over. Also, overseas investors have doubled their position in index futures during the month. The Nifty is currently trading above 50- and 200-day moving averages. Analysts expect continuation of the recent uptrend. The Nifty index has support at 11,300 levels and resistance at 11,600 levels. Analysts say the index could hover in this 300-point band until traders take cues from the next big trigger, which is Q2FY19 earnings.

Domestic hedge funds seek relief

A delegation of domestic funds is said to have met with government officials after the latest round of tax cuts. Domestic funds are still said to be smarting at having to pay higher tax surcharge, while foreign portfolio investors have escaped with a rollback. Essentially, homegrown hedge funds have to pay a higher tax on their short-term profits than their foreign counterparts. This is said to be affecting their attractiveness to wealthy individuals after a period of reasonably good growth in the segment.  Given the representations, one will have to see if the government pays heed.

Divergence continues despite tax cuts

Select large-caps have been outperforming the broader markets this year. This trend has continued even after the surprise reduction in corporate tax. Since the announcement on September 19, the Nifty has gained 7.5 per cent, while the Nifty Midcap 100 and the Nifty Smallcap 100 indices have risen 5.4 per cent and 4.7 per cent respectively. An analysis by Motilal Oswal shows that the polarisation in the market has become stark in the past few months. Nifty’s year-to-date gains are “largely driven by a group of top 15 Nifty stocks, which are up by 30 per cent over this period. The other 35 stocks are down by 15 per cent. The divergence between these two groups is at 45 per cent, up sharply from 33 per cent in March 2019,” the brokerage said.