Market

Corporate Tax Cut Impact: Financial stocks extend rally, Nifty Bank index jumps 6%

Updated : September 23, 2019 09:50 AM IST

Nifty Bank rose as much as 5.5 percent on Monday, extending gains from Friday's session after Nirmala Sitharaman announced cuts in corporate tax rates to revived the slowing economy.

The front runners in the Nifty Bank index were mainly private banks. IndusInd Bank surged 7 percent, followed by ICICI Bank, up 5.5 percent.

On Friday, the index had risen as much as 8 percent, its biggest single-day gain in 10 years. Since the announcement, the index is up over 14 percent.

Corporate Tax Cut Impact: Financial stocks extend rally, Nifty Bank index jumps 6%

The Nifty Bank index rose as much as 5.5 percent on Monday, extending gains from the previous session, after Finance Minister Nirmala Sitharaman announced cuts in corporate tax rates to revive the slowing economy. The move will lower the highest tax rate on companies to 25.17 percent from 34 percent previously, including the surcharge and cess.

On Friday, the index rose as much as 8 percent, its biggest single-day gain in 10 years.

The front runners in the Nifty Bank index were mainly private banks. IndusInd Bank surged 7 percent, followed by ICICI Bank, up 5.5 percent, HDFC Bank, up 4 percent, RBL Bank, up 3.8 percent, and Axis Bank up 3.6 percent. In comparison the Nifty was trading 2.4 percent or 273 points higher at 11,548.

ALSO READ: Here's what top brokerages think of corportae tax cuts and their strategies going forward

Meanwhile, SBI, Kotak Bank, IDFC First Bank, and Federal Bank also traded in the green. YES Bank was the only constituent in the negative.

Other banking indices, such as Nifty PSU Bank and Nifty Private Bank, rose over 3 percent each in intra-day deals.

Brokerages have cheered the corporate tax cut by the government. According to Credit Suisse, tax rate reductions will boost bank earnings by 8-12 percent in FY21 and raise return on equities (RoEs) by 100-200 bps, which may lead to multiple re-ratings in the sector.

The brokerage continues to prefer well-capitalised banks while remaining cautious on PSU Banks and NBFCs. It also added that HFCs and insurance companies will see a limited upside.

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