Overnight, India’s SENSEX benchmark recorded a 6.6 standard deviation move (versus the 2 year distribution of changes). The index’s 5.3% gain was its biggest one-day rally since May 2009.

Behind the move was a new set of stimulus policies from India’s government. The Finance Minister announced a corporate income tax cut from 30% to 22%, with additional levies bringing the total effective corporate income tax rate to 25.2%. Newly-formed companies will pay even less, 15% (17% effective), which is as low as a jurisdiction like Singapore. Notably, this tax cut is in large part retroactive to April of 2019, which has dubious economic value but is rocket fuel for the index. Banks and other financials led the charge on the index with other cyclicals like Tata Steel, Tata Motors, and Maruti Suzuki also surging.

As shown below, the 5%+ gain for the SENSEX came at a time when the index was further breaking down within a multi-month downtrend.  Instead of being oversold at new lows and well below its 50-day and 200-day moving averages, the SENSEX heads into the weekend in overbought territory and back above its major moving averages.  When surprise fiscal policy moves hit the tape, you can throw technicals out the window!  Start a two-week free trial to Bespoke Institutional to stay up-to-date on all the latest developments in global financial markets and economics.