InvestorQ : With the Sensex scaling 40,000 mark, can it now sustain above that level or will it correct once again?
Mahima Roy made post

With the Sensex scaling 40,000 mark, can it now sustain above that level or will it correct once again?

Aditi Sharma answered.
4 years ago

It is hard to say if the Sensex will sustain or not but there are quite a few factors that are favouring the Sensex sustaining at higher levels at this point of time. Here are a few reasons why the Sensex could sustain above 40,000 now.

a) The government has rolled back most of the controversial announcements made in the Union Budget like the higher public holding threshold, FPI surcharge hike etc. This can be positive for the Sensex.

b) The government has in September cut the corporate tax rate from 30% to 22%. This is likely to add about $20 billion to the profits of the Indian companies and this also makes the valuations in P/E terms more reasonable.

c) In addition, the government has offered concessional rate of 15% tax on new manufacturing projects. With the MAT also abolished for such new formula companies, the markets could see a sustained rise.

d) Muhurat trading has begun on an auspicious note for the new Samvat year. The FPIs are also back to investing and are net buyers in the Indian markets. That is a major positive for the Sensex from current levels.

e) Global cues are getting to be more favorable now. China is undertaking stimulus for pushing growth, US is moving towards trade deal with China and BREXIT finally looks set to happen smoothly. All these are favorable.

f) Oil prices are subdued and that should also work in favour of the Sensex. The combination of tepid oil prices and strong rupee are reflected in the rally in mid cap and small cap stocks. That should make any rally more sustainable.

In a nutshell, there are still risks and major geopolitical factors are in the price. The government is hinting at a scrapping of DDT and possible revamp of LTCG tax on equities. All these put together must favour the market. Sensex looks set to sustain above 40,000 albeit with some hiccups along the way.