Sensex, Nifty recover after weak opening amid hopes of LTCG tax relief
Indian benchmark indices bounce back from a weak start as investors anticipate relief on LTCG and STT taxes despite global headwinds.
Indian benchmark indices staged a recovery on Wednesday, bouncing back from a sluggish start to trade in positive territory. The turnaround was fueled by growing optimism that the government might provide relief regarding Long-Term Capital Gains (LTCG) tax and Securities Transaction Tax (STT), alongside a noticeable decline in institutional selling.
At the opening bell, the market faced immediate pressure. The BSE Sensex fell 116.42 points, or 0.16 per cent, to 72,917.36, while the NSE Nifty 50 dropped 30.85 points, or 0.14 per cent, to 22,691.10. Even the GIFT Nifty showed weakness, trading lower at 22,709.50, down 141 points, or 0.62 per cent.
Tax Relief Expectations Drive Sentiment
The primary catalyst for the mid-session recovery appears to be recent commentary from Union Finance Minister Nirmala Sitharaman. Speaking at the Bloomberg New Economy Forum, the Finance Minister indicated that the government would review stakeholder feedback concerning LTCG tax and STT. This hint at a potential structural review has raised significant expectations among investors for possible tax relief.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, noted that the market's recent movements have been volatile. He pointed out that the sharp rally in the Nifty observed on Tuesday was somewhat unexpected in a downtrending market and was largely driven by short-covering, where traders rushed to close their positions following a sudden recovery.
Currency Strength and FII Selling
Another supporting factor for the indices has been the strengthening of the rupee. Following measures by the Reserve Bank of India to curb currency speculation, the rupee appreciated by approximately 1.5 per cent over the previous two trading sessions. This appreciation has helped ease the selling pressure previously exerted by Foreign Institutional Investors (FIIs).
Global Headwinds and Market Challenges
Despite the domestic recovery, the market remains under pressure from several global factors. Analysts warned that the bullish momentum could face significant hurdles due to:
- High US Bond Yields: The US 10-year bond yield has been hovering around the 5.2 per cent mark.
- Crude Oil Prices: Brent crude remains elevated, trading near USD 106 per barrel, which typically acts as a drag on emerging markets.
- Mixed Global Cues: US market futures showed a mixed trend, with Dow Jones futures rising slightly while Nasdaq futures declined.
While these headwinds exist, certain sectors are expected to show resilience. Financials, telecom, metals, and automobiles may perform well on the back of expectations for strong second-quarter results.
Technical Outlook: Support and Resistance Levels
From a technical standpoint, market experts suggest that the indices have found crucial support levels. Shrikant Chouhan, Head of Equity Research at Kotak Neo, observed that the Nifty found support near the 22,300 level and the Sensex near 71,700 before the recent rebound.
Key levels to watch:
- Nifty Support: 22,480
- Nifty Resistance: 22,850 (A move above this could target 23,000)
- Sensex Support: 72,500
- Sensex Resistance: 73,500 (A move above this could target 74,000)
Chouhan cautioned that while the formation of bullish patterns is a positive signal, a fall below these key support levels could weaken the current trend and force traders to reconsider their long positions.