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Corporate tax cut: Here's what top brokerages make of the move and their strategies going forward

Updated : 2019-09-23 08:24:36

Union finance minister Nirmala Sitharaman on Friday said that the government proposed to cut corporate tax rates for domestic companies and for new domestic manufacturing enterprises as part of a raft of measures to boost economic growth. On Friday, the benchmark indices rose over 5 percent, their biggest one-day gain in a decade. The Sensex ended 1,921 points higher at 38,015, while the broader Nifty50 index added 569 points to end the day at 11,274. Here's what top brokerages think about the move:

<strong>Credit Suisse India strategy:</strong> Sharp cut to the corporate tax rate is aimed to make India globally competitive, it said, adding that the tax cut 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, it added.
Credit Suisse India strategy: Sharp cut to the corporate tax rate is aimed to make India globally competitive, it said, adding that the tax cut 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, it added.
<strong>CLSA India Strategy:</strong> Lower corporate tax rate implies a 7-8 percent EPS upgrade for Nifty, CLSA said. According to the brokerage, companies with large tax benefits are HDFC Bank, Kotak Bank, ITC, Colgate, Britannia, ONGC, BPCL, ICICI Lombard, L&T, Bajaj Auto, Hero, Eicher, Zee, Bharat Forge, and Pidilite. 
CLSA India Strategy: Lower corporate tax rate implies a 7-8 percent EPS upgrade for Nifty, CLSA said. According to the brokerage, companies with large tax benefits are HDFC Bank, Kotak Bank, ITC, Colgate, Britannia, ONGC, BPCL, ICICI Lombard, L&T, Bajaj Auto, Hero, Eicher, Zee, Bharat Forge, and Pidilite. 
<strong>Jefferies India Strategy:</strong> According to the brokerage, the biggest beneficiaries of the corporate tax cut will be Asian paints, Avenue Super, Britannia, Jubilant Food, United Spirits, and Colgate. Meanwhile, Dabur, Marico, and GCPL should see negligible impact given already lower tax rate. 
Jefferies India Strategy: According to the brokerage, the biggest beneficiaries of the corporate tax cut will be Asian paints, Avenue Super, Britannia, Jubilant Food, United Spirits, and Colgate. Meanwhile, Dabur, Marico, and GCPL should see negligible impact given already lower tax rate. 
<strong>Citi India strategy:</strong> Slashing of corporate tax could reset coverage earnings up by as much as 8-9 percent, the brokerage said. The ambitious scope of the reforms could also act as a sentiment booster to equities, it added. Citi also raised March 2020 Sensex target to 40,500 from 39,000.
Citi India strategy: Slashing of corporate tax could reset coverage earnings up by as much as 8-9 percent, the brokerage said. The ambitious scope of the reforms could also act as a sentiment booster to equities, it added. Citi also raised March 2020 Sensex target to 40,500 from 39,000.
<strong>Morgan Stanley India strategy:</strong> Corporate tax cuts create room for improved earnings growth, the brokerage said. It raised earnings growth estimates for Sensex to 25 percent in FY20 and 23 percent in FY21. Morgan Stanley raised Sensex target to 45,000 by June 2020.
Morgan Stanley India strategy: Corporate tax cuts create room for improved earnings growth, the brokerage said. It raised earnings growth estimates for Sensex to 25 percent in FY20 and 23 percent in FY21. Morgan Stanley raised Sensex target to 45,000 by June 2020.
<strong>Macquarie India Strategy:</strong> The government has brought the economy back in clear focus with $20 billion in corporate tax cuts, the brokerage said, adding that a 70 basis point fiscal deficit slippage is tolerable. The brokerage recommends adding domestic cyclical like banks, industrials, and autos while remaining 'underweight' on consumers. Its top large-cap picks are HDFC Bank, L&T, and Maruti Suzuki.
Macquarie India Strategy: The government has brought the economy back in clear focus with $20 billion in corporate tax cuts, the brokerage said, adding that a 70 basis point fiscal deficit slippage is tolerable. The brokerage recommends adding domestic cyclical like banks, industrials, and autos while remaining 'underweight' on consumers. Its top large-cap picks are HDFC Bank, L&T, and Maruti Suzuki.
<strong>Kotak Institutional Equities India Strategy:</strong> Corporate tax rate cut is a huge boost to private sector investment, the brokerage said, adding that autos, banks, consumer staples and global commodity sectors may see large earnings upgrades. The brokerage increased its FY20 earnings per share estimate for Nifty50 by 10 percent and expects profits of the Nifty50 index to grow 25 percent for FY20.
Kotak Institutional Equities India Strategy: Corporate tax rate cut is a huge boost to private sector investment, the brokerage said, adding that autos, banks, consumer staples and global commodity sectors may see large earnings upgrades. The brokerage increased its FY20 earnings per share estimate for Nifty50 by 10 percent and expects profits of the Nifty50 index to grow 25 percent for FY20.
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