A rally in Reliance Industries (RIL) shares and growing optimism over a possible rollback of long-term capital gains (LTCG) tax for foreign investors gave Dalal Street plenty to cheer about on Monday, lifting both benchmark indices nearly 2%. Buying picked up through the session, with RIL stock seeing its biggest intraday upmove since April 2020.
Sebi has recommended scrapping LTCG tax for foreign investors as India seeks to revive its underperforming equity markets, Reuters reported on Monday. The market regulator has also proposed an LTCG exemption for mutual fund investors who sell existing holdings to reinvest in other funds, the report said.
Sebi’s proposal is a step in the right direction, but tax efficiency alone will not bring foreign capital back to India, said Nirav Karkera, head of research and fund manager at W by Groww.
While lower capital gains taxes would improve post-tax returns, reduce friction and make Indian equities more competitive against other emerging markets, the primary drivers of foreign flows remain earnings growth, valuations, currency stability, and India’s relative attractiveness within emerging markets, he added.
On Monday, Nifty 50 closed 1.68% higher at 23,440.80 and Sensex ended 1.66% up at 75,692.78. RIL, which carries a 7.3% weight in the Nifty 50, surged 11.6% on NSE, its biggest single-day gain since it jumped 11.9% on 7 April 2020, according to Bloomberg data.
The index started the week on a strong note, opening with a gap-up and holding on to its gains through the session. RIL, Tata Steel and JSW Steel were best performers in the benchmark index.
Key levels signal recovery
“The index broke out of its recent consolidation range, extending its winning streak to three sessions and signalling an improvement in near-term buying sentiment,” said Sudeep Shah, head of technical and derivatives research at SBI Securities. He pointed out that the Nifty has also moved above the 38.2% Fibonacci retracement level after a sharp correction over recent months. This means the index has recovered over a third of its recent losses, indicating improving momentum and a potential turnaround in market sentiment.
From a technical perspective, Shah noted that RIL has seen a double-bottom neckline breakout on the daily chart, indicating a potential bullish trend reversal. The relative strength index (RSI) has moved sharply higher, reflecting a significant improvement in bullish momentum, he added.
Overall, Monday’s move in Reliance has improved the near-term technical outlook for both the stock and the benchmark index, said Shah. However, a sustained move above the 200-day exponential moving average in Reliance, along with follow-through buying in the broader market, will be important to establish whether this recovery marks the beginning of a more durable trend reversal rather than just a sharp rebound, he said.
Positioning in RIL was “weak” ahead of Jio’s listing, with some investors selling the conglomerate’s shares to make room for Jio in their portfolios, said the managing partner of an advisory firm. “Monday’s buying could partly reflect investors now moving to cover those positions,” this person said.
Near-term market sentiment remains cautious, with further upside tied to stable crude oil prices and steady domestic economic indicators. Although Brent crude fell nearly 4% to $108.64 a barrel on Monday as Iranian-Qatari talks raised hopes of easing Middle East tensions, oil prices remain a key variable for the market outlook.
