Investors Dismiss Tax Hikes, Weak Earnings; Nifty Rises 1.76%

On Friday, the benchmark Nifty index shot up by 1.76%, making investors richer by ₹7 trillion as institutions scooped up cash shares and derivatives supported by retail participation through mutual funds. This unexpected surge has left many market veterans puzzled, especially considering the recent tax hikes in the Union budget and weak earnings reported in the banking sector. 
 
In a surprising move, the Union budget increased the long-term capital gains tax from 10% to 12.5%, applicable for profits exceeding ₹1.25 lakh from share sales; previously, this was applied to profits above ₹1 lakh only. Meanwhile, the short-term capital gains tax saw an increase from 15% to 20%. Despite these changes that could potentially discourage investments, market experts believe that investors have taken it all in stride based on their reactions. 
 
On Friday, driven predominantly by Infosys, Bharti Airtel, ITC Limited (formerly known as Indian Tobacco Company), Reliance Industries, and Mahindra & Mahindra, which accounted for over a third of its movement, the Nifty hit a fresh high of 24861.15 points, surpassing its previous record of 81587.76 set on July 19, before finally closing at an impressive figure of 24834.85 points. 
 
Foreign institutional investors, or FIIs, who had been selling off shares worth₹7,255 crore consecutively for three days bought back provisional₹2546.38 crore worth of shares on Friday, while domestic institutions made purchases amounting to provisional₹2774.31 crore, leading to total buying since post-budget valued at approximately₹6 trillion according to data provided by Bloomberg and BSE. 
 
Retail investors who bought directly via NSE invested about 5178 crores between July 23 and 24, with more data expected for Thursday and Friday's transactions.
 
Following this surge in investment activity, the overall market cap peaked at whopping figures close to ₹452 trillion on the NSE, with the market firmly favoring advances; for each stock that declined, there were two that advanced. 
 
Siddhartha Khemka, head of research (retail) at Motilal Oswal Financial Services, expressed his surprise at this sudden turn of events. "I expected the market to drift lower due to increased capital gains tax and mixed results," said Khemka. "However, retail liquidity held the market up smartly post-budget, driving the Nifty to a fresh high when even FIIs resumed buying." 
 
Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies, also echoed similar sentiments, stating that despite disappointing quarterly earnings and tax hikes, investors seem to have reconciled themselves, which has driven the markets higher. 
 
The banking sector, which is typically seen as the mainstay of Indian markets, was underperforming primarily on the net interest margin front, making Friday's rally surprising. This sentiment was furthered by Holland, who termed recent results from leading banks such as Axis Bank and HDFC Bank a disappointment. 
 
In conclusion, it seems that despite initial concerns surrounding increased taxes in the Union budget coupled with weak earnings in certain sectors, investor confidence remains strong, as evidenced by continued participation via direct purchases or mutual funds pushing the Nifty index towards record highs.