How Government Policies Revived the Indian Stock Markets in Two Days
Over the past two days, the Indian stock markets experienced a remarkable revival. This turnaround is primarily linked to the recent government actions and reforms that have boosted investor confidence. The key factors driving this market recovery include the removal of certain taxes on foreign institutional investors (FIIs) and the ongoing discussions between the finance minister and industry leaders.
Government Actions and Their Impact
One of the critical factors that brought about this market revival is the government's decision to remove the extra taxes imposed on investors, particularly FIIs, and FPIs. In the current budget, the government took significant steps to mitigate the financial burden on these investors. Specifically, the long-term capital gains tax was reduced, which had a positive ripple effect on market sentiments.
Key Players in the Indian Stock Market
The Indian markets have two main categories of institutional investors: Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). While FIIs are often considered the primary influencers, the role of DIIs cannot be understated. DIIs, a diverse lot comprising mutual funds, LIC, and dabba traders, play an equally important role. Dabba traders, in particular, are known for strategically manipulating market prices, especially during the last days of settlement.
Dabba traders have a significant influence on the market dynamics. They often take positions against retail traders, particularly on the last day of settlement or the last two days. This manipulation has become a significant source of income for them. The recent sell-off by FIIs indicates a collective strategy to reduce their exposure, leading to a significant downturn in the market.
Rebuilding Confidence
The major reviving factor is the hope generated about the government's potential actions to remove the tax on FIIs, which was imposed in the recent budget. This tax hike was met with criticism both domestically and internationally, contributing to the market's pessimistic outlook. For the past month, FIIs were engaged in a major selling spree, leading to a significant decline in the market.
The recent meetings between the finance minister and industry stalwarts, as well as market participants, have also bolstered market confidence. The minister's patient listening to the specific issues of sectors like AUTO, which have been severely affected, gives investors a sense of hope that positive steps may be announced soon to support these ailing sectors.
Further Support and Market Indicators
The revival of the market was further supported by the decision to scrap the infamous Article 370, which had a profound political and economic impact. The scrapping of this article has received strong support from the country's citizens, and it is expected to boost rural consumption and cheer up demand in the market. Additionally, a significant reduction in the deficit from 35% in June to 2% in August, driven by a good monsoon, has also contributed to market growth.
Other positive factors include low crude oil prices, which will help India, a net importing nation, reduce its import bill. This beneficial economic scenario is expected to be favorable for the overall market and investor sentiment.
Conclusion
The recent revival of the Indian stock markets can be attributed to a combination of government actions, ongoing consultations with industry leaders, and positive market indicators. The hope generated by the government's proposed reforms and the confidence-building measures have played a crucial role in regaining investor trust and reviving the market in just two days.
For investors, this period of market recovery offers a potential investment opportunity, but it is important to keep abreast of the latest government policies and market trends to make informed decisions.