SENSEX zooms 1,000 points, NIFTY50 tests 25,000; auto stocks skyrocket: Top factors behind the market rally

The S&P BSE SENSEX jumped as much as 1,021.93 points, or 1.26%, in the early trade. On the NSE, the NIFTY50 index rallied as much as 390.7 points, or 1.58%, to hit a high of 25,022 level.

Last seen, SENSEX was trading at 81,556.86, up 959.20 points, or 1.19%, while the 50-share index of the NSE was ruling at 24,939.10, up 307.80 points, or 1.25%.

The strong rally in the market could be attributed to sweeping changes in the GST rates Prime Minister Narendra Modi announced in his Independence Day Speech on Friday, August 15.

From the ramparts of the historic Red Fort, PM Modi announced that the GST rates will be lowered by Diwali, bringing down prices of everyday use items, as his government looks to reform the eight-year-old tax regime that has been plagued by litigation and evasions.

Later, the Finance Ministry said it has proposed that most goods and services be taxed in two slabs – standard and merit – and a select few items be charged special rates. This is to replace the current goods and services tax (GST) structure, where the sale of goods and rendering of services are taxed in four different brackets – 5, 12, 18 and 28 per cent, with luxury and sin goods attracting a levy on top of the highest rate of 28 per cent.

News agency PTI reported the central government has proposed two tax rates of 5% and 18% in the revamped Goods and Services Tax (GST), slated to replace the current indirect tax regime by Diwali this year.

The Centre has sent its proposal, which removes 12% and 28% slabs, to the panel of state finance ministers on GST rate rationalisation. They will now discuss it and place it before the GST Council. The council is expected to meet next month.

While 0%GST is charged on essential food items, 5% is charged on daily use items, 12% on standard goods, 18% on electronics and services and 28% on luxury and sin goods. The revamped GST regime will have two slabs plus a special rate of 40% for luxury and sin goods, PTI reported.

When the revamped structure is approved by the GST Council, 99% of items in the current 12% slab will move to the 5% bracket. Similarly, almost 90% of goods and services that are currently charged at 28% would shift to an 18% tax rate.

Vivek Jalan, Partner, Tax Connect Advisory Services LLP, said the GST Council has not met for the last eight months as a massive exercise for rate rationalisation is underway, and a Group of Ministers (GoM) is reviewing the comprehensive rate rationalisation programme.

"It is expected that this Diwali, items of mass consumption by the common man will be brought into the lower slab of 5 per cent GST. For example, small sachets of ₹10 or less supplied by FMCG players may be considered to be brought under the lower tax bracket of 5%," Jalan added.

Jalan said a lower GST rate will augur well for the overall economy.

Market Check

On the SENSEX, Maruti was the biggest gainer – up over 6.5%, followed by Bajaj Finance (up 4.5%) and M&M (up around 4%). The top contributors to the index's gains were HDFC Bank, ICICI Bank, Maruti, M&M, and Bajaj Finance.

Sector Watch

Barring healhealthcare and & gas sectors, all other sectoral indices were trading in the green. The biggest gainer was auto index. The BSE AUTO index was trading at 56,108.24, up 2,170.71 points, or 4.02%.

Broader Market

The second-rung stocks, too, participated in the market rally as both mid and small-cap indices were trading with impressive gains. The BSE MidCap index wa trading at 45,503.23, up 523.99 points, or 1.16%, while the BSE SmallCap index was trading at 52,281.95, up 493.07 points, or 0.95%.

Another reason why stocks are surging high today is India's rating upgrade by S&P Global Ratings.

S&P on Thursday upgraded India's sovereign credit rating to 'BBB' with a stable outlook after a gap of nearly 19 years, citing robust economic growth, political commitment for fiscal consolidation and 'conducive' monetary policy to check inflation.

"India remains among the best performing economies in the world...The quality of government spending has improved in the past five to six years," S&P Global Ratings said.

The impact of US tariffs on the Indian economy will be "manageable", S&P said, adding that a 50% tariff on US exports (if imposed) will not pose a "material drag" on growth.

"India is relatively less reliant on trade and about 60% of its economic growth stems from domestic consumption," it said.

Other key updates

In Asian markets, Japan's Nikkei 225 index, Shanghai's SSE Composite index and Hong Kong's Hang Seng traded in positive territory while South Korea's Kospi quoted lower.

The US markets ended mostly lower on Friday.

Global oil benchmark Brent crude dipped 0.05% to $65.82 a barrel.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹1,926.76 crore on Thursday, according to exchange data.