Mumbai: Benchmark Sensex and Nifty indices on Monday added to gains from Friday as brokerages upgraded Indian equities and raised target prices and earning per shares after the Centre announced a cut in corporate tax for domestic companies to boost economic growth.
At 9.15 am, Sensex index was up 2.2%, or 830 points, at 38,844, while Nifty rose 2.38%, or 268.50 points, to 11,542.70.
On Friday, the government announced significant cut in corporate tax rates. The marginal effective tax rate for corporates was cut from 35% to 25.17%, inclusive of prevailing cess and surcharges. New manufacturing units can enjoy an even lower tax rate of 17.01%. Similarly, MAT (Minimum Alternate Tax) was reduced from 18.5% to 15%.
“We believe the step has significant positive implications for corporates’ profitability, broader economy and market valuations. We expect the strong monetary stimulus in the near-term to result in a cyclical recovery followed by investment/exports-led growth in the medium term,” said Nomura Research in a note to its investors on 23 September.
Nomura has upgraded Nifty target for March 2020 to 12545 on the back of a potential 7% earnings increase in fiscal 20/21. It’s top picks are ICICI Bank, Axis Bank, Larsen & Toubro Ltd, Container Corporation of India, Dr Reddy’s Laboratories Ltd, and ICICI Prudential Life Insurance Co Ltd — all with a ‘Buy’ rating.
Credit Suisse said sharp cut to the corporate tax rate is aimed to make India globally competitive and it significantly boosts medium-term investment potential. The brokerage remains ‘underweight’ on consumption and ‘overweight’ on financials. Lower taxes will help ICICI Bank, IndusInd Bank, HDFC Bank, and L&T, the brokerage firm added
Morgan Stanley raised its earnings growth estimates for the BSE Sensex to 25% in F2020 and 23% in F2021 and raised its BSE Sensex target to 45,000 by June 2020.
According to Jefferies India, tax cut could boost earnings growth for our coverage universe by ~0-14%, but we expect companies to pass on some benefits to consumers in an attempt to revive weakening consumption trends given a lower probability now of near-term demand stimulus.
“Given the corporate tax rate cut, we expect Asian Paints, Avenue Supermart, Jubilant Foodworks, Nestle, United Spirit, Britania, ITC and Colgate to be the biggest beneficiaries, with a potential earnings boost of ~11-14%. On the other hand, companies like Dabur, Marico and Godrej Consumer Products Ltd should see negligible earnings impact given their already lower effective tax rate. We think Hindustan Unilever could see ~7% earnings upside, with Titan and Emami at ~4%,” Jeferries India added.
According to a CRISIL report, the cut in corporate tax will help the top 1000 listed companies save at least ₹37,000 crore this fiscal. The rating firm expects 5-6% growth in India Inc’s revenues and EBIDTA for this fiscal, with savings seen a tad higher.
