If the tax cuts announced have to be really meaningful, then MAT credits need to be addressed urgently. In fact, MAT credits of Rs.75,000 crore may be a big roadblock to lower tax rates. Even as the markets have been celebrating the sharp reduction in the corporate tax rates from 30% to 22%, there has been an issue pertaining to MAT credits outstanding. The CBDT has clarified that any MAT credit will have to be forfeited which would be unviable for the larger companies since just five companies have accumulated MAT credits of Rs.75,000 crore. That remains a major roadblock for the tax cuts.
After a long time the stock markets rallied for five days in succession. However, what cannot be missed in the Sensex rally on Wednesday was the sectoral roles reverse in the stock markets. The markets continued its rally for a record fifth day with reasonable breadth of markets. However, the winners and losers in the market reversed. Metals and autos were among the major losers on Wednesday while IT and Pharma were the major gainers during the day. The news around a good price for the sale of BPCL helped the stock to be the top gainer on the Nifty on Wednesday. Stock has rallied nearly 50%.
Credit growth of banks drops to its lowest level in the last two years and that is not great news at a time when the government is looking to revive growth in the economy. Whether it is debt aversion or slowing consumption, remains to be seen. The bottom line is that the credit growth to the commercial sector is distinctly slowing; and this applies to micro, SME and industrial credit with lending growth halving to 8.8% in September quarter. The report has also added that even private banks are now getting a little cagey about consumer loans due to increased consumer stress visible in some quarters.
Brent crude bounced back sharply to close 116 bps higher at $59.42/bbl on Wednesday. There was a late bounce in crude prices as markets began to build in expectations of a supply cut agreement to by OPEC. Most oil traders also covered their short positions ahead of oil inventory data to be announced. However, crude still trades below the psychological $60/bbl mark. Meanwhile, there was halting progress on the all-important BREXIT deal. However, Boris Johnson will still have to push it through in Parliament. The bigger challenge for the British PM would be push through the idea in UK. Labour party has been asking to bide for time, but the PM is not playing ball beyond October 31st. When Johnson meets the EU team on Friday, he may ask for more concessions to placate public opinion back in Britain
Mutual Funds have started nibbling at stocks that have seen deep correction in last one year. According to a report in the ET, Indian mutual funds have been gradually nibbling away at certain stocks that have shown a sharp correction in the last one year. MFs have increased their stake in Shoppers Stop by 500 bps, stake in TVS Motors has gone up by 470 bps and in V-Mart the stake of MFS has gone up by nearly 400 bps. Most of these stocks had touched 52-week lows. Interestingly, Indian mutual funds have also increased their exposure to private banks back to previous peak levels post the correction.
