India’s Finance Minister, Nirmala Sitharaman, has just announced massive corporate tax cuts in an attempt to boost flatlining growth in the economy.
Corporate tax for domestic companies will be slashed from 30% to 22% and manufacturing companies incorporating after October 1st will enjoy a 15% tax rate provided they start operations by 2023.
The announcement has sent Indian equities soaring with the National Stock of India Fifty (NIFTY) 50 Index climbing 5% to 11,226.0. Two-month resistance at 11,550.0 has been brushed aside and should become technical support on any pullbacks. The Nifty has broken its two-month range and now eyes the June highs around 12,075 as its next target.
The surprise India move was the highlight of an otherwise dull day in Asia after a tumultuous week. The fiscal steps by the Indian Government are likely to re-energise investor interest in the sub-continent. 2.5 years of slowing growth and disappointment in P.M. Modi’s reform progress had sapped investor confidence. India still has a non-performing loan swamp to drain, but this is most definitely a step in the right direction.
The Indian Rupee (INR) has rallied 0.65% against the U.S. dollar with USD/INR falling to 70.900 after earlier testing dollar support at 70.310. Technical resistance is at 72.000 with a break of today’s low signalling a possible move towards 69.050.
Elsewhere the GBP has climbed 0.35% to 1.2570 on hopes of a Brexit deal in the wings. Technical resistance is very near at 1.2580 with long-term resistance at 1.2800. The later will be a bridge too far without concrete progress but could be a story for next week. Some caution is warranted at these levels. Markets have been led to water on Brexit before only to find the watering hole contaminated.