Finance Minister Nirmala Sitharaman’s corporate tax cut proved a shot in the arm for domestic equities, as aggregate market capitalistion of BSE-listed firms spiked by over Rs 10 lakh crore in just two sessions.
Analysts say the corporate tax cut and a supportive monetary policy should boost the sagging investment cycle. Brokerage Motilal OswalNSE -3.91 % said the measures announced are substantive and have the potential to kickstart the moribund investment cycle over time.
“Consumption stocks have been doing pretty well over the past four-five years. Consumption as a share of GDP has peaked and investment as a share of GDP is at the bottom. It will be going up from here on,” Mahesh Nandurkar, India Strategist, CLSA, told ETNOW.
Declining savings rate has been hurting investments in India. But a likely rise in corporate savings after the latest tax cut should help nudge the private capex cycle, analysts say.
The government on September 20 announced a Rs 1.45 lakh crore fiscal stimulus by slashing of corporate tax to 22 per cent from 30 per cent and lowering minimum alternate tax (MAT) to 15 per cent for companies putting fresh capital into manufacturing.
The reduced corporate tax rate of 22 per cent would apply on domestic entities that don’t avail any other exemption and tax incentives. Also, these companies will not be required to pay any MAT. The effective tax rate, in this case, would be 25.17 per cent, including cess and surcharge.
“The sentiment booster provided by these measures, coupled with the transmission of the 110 basis points of rate cut already done by RBI, can at the margin provide a push to consumption in the midst of an all-important festive season. A significant recovery in monsoon should also aid rural consumption, albeit with a lag,” Motilal Oswal Financial Services said.
The brokerage is bullish on ICICI Bank, SBI, L&T, UltraTech, Titan Company, Eicher Motors, ICICI Prudential and Bharti Airtel in the largecap space. On the other hand, it is positive on Indian Hotels, Federal Bank, Mahindra & Mahindra Financial Services, Ashok Leyland, PI Industries, Aditya Birla Fashion, Trent, JK Cement and Oberoi Realty among the midcaps.
There are hopes that foreign institutional investors may respond positively to these announcements. Goldman Sachs is bullish on Indian equity market and has set a year-end target of 13,200 for Nifty, citing a mild cyclical recovery driven by supportive fiscal and monetary policy. The foreign brokerage likes domestic cyclical sectors like banks, industrials and autos.
Market capitalistion of BSE-listed firms zoomed to nearly Rs 149 lakh crore on September 23 from Rs 138 lakh crore on September 19.
“I would like my portfolio to be skewed more in favour of the investment cycle, a theme I would like to play through the capital goods names, some of the infra names and private sector corporate banks. One can take a selective bet on the state-owned banks as well. I would also like to take a look at the four-wheeler space, because this has got battered,” said Nandurkar.