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Indian corporate sector cheers Nirmala Sitharaman's tax slash move

Indian corporate sector cheers Nirmala Sitharaman's tax slash move

| @indiablooms | 20 Sep 2019, 10:36 am

Mumbai/Goa: The industry captains and market experts cheered Union Finance Minister Nirmala Sitharaman's move to slash corporate tax, calling it a step in the right direction and game-changer for the sagging Indian economy.

Meanwhile, Sensex gained 2,200 points and Nifty zoomed 11,350 after the Finance Minister announced the corporate tax bonanza.

There was a huge improvement in domestic stocks, the first time in the decade, after the tax cuts, with market analysts declaring government's move the best thing for the sluggish economy.

Reacting to today’s announcement, Rajiv Singh, CEO, Karvy Stock Broking said: "After a large number of minor measure, the government announced a bold and major measure to revive animal spirits. The high corporate tax rate meant that Indian companies were not competitive and this move helps address this and shall also boost FDI. The effective tax rate now stands at 25.17%, and for new companies, the effective tax rate will be 17%. The measure is thus a boost for start ups as well. Additionally, the Finance Minister also announced that there will be no tax on buybacks announced before July and no surcharge on capital gains as well.

Deepak Jasani, Head of Retail Research at HDFC securities, said, "the markets have expectedly reacted very well to the relief measures announced today. The government has chosen to spur consumption and investment by giving reliefs in direct taxes (vs GST reliefs expected by different sectors).

"Stressed corporates may however not benefit as the reliefs may not apply to them, as no GST reliefs have been announced. Large change in PSU divestment policy and changes in land, labour and judicial reforms may be more keenly awaited now than ever before. Kharif harvest outcome (and its impact on rural income and spend) and festive season consumption spend in urban areas in mid to end October will also be looked forward to," he noted. 

Reduction of corporate tax has been on the agenda for a while, and this should help in boosting the capex cycle, also it gives companies space to cut prices to boost demand. The corporate tax cut should go a long way in a revival of the economy.

The government estimates the fiscal impact to be about 0.7% of GDP, and bond yields have gone up as a result. The measures will benefit the economy with a lag and the boost to the economy as a result of the tax cuts should help offset much of the lower tax rates later in the year and next fiscal year.

Among the sectors, I expect Banking, FMCG, consumer durables, and Auto companies will be major beneficiaries. The Manufacturing sector will become attractive with a 15% Corporate Tax rate for new manufacturing companies in India especially in the times when the world is in the phase of trade wars."

Mustafa Nadeem, CEO, Epic Research, said: “This is huge for the market. There were few announcements that were keeping sentiments in check as FM was trying to boost market sentiments and improve the state of the economy by boosting exports, Banks consolidation, Recapitalization and so on but reducing the Corporate tax rate to 22% or domestic players and 15% for new entrants setting up manufacturing units is a big boost. It has two important effects. One the domestic environment which was sluggish due to slowdown is going to fade with lowered corporate taxes and second the Make in India will see a boost as well.

Markets, on the other hand, have totally taken it as something which has turned the table for medium to long term. Today's reaction is totally out of surprise and it will be acting as strong support for the coming weeks and months. 10700 - 10800 is now set to be a strong base for Nifty and we may see continuity in positive momentum on any dips from here on.”

Romesh Tiwari, Head of Research, CapitalAim, said, "A very welcome move for the corporate sector in general and will help boost the investment activities in the manufacturing cycle. The immediate impact on the market is due to unexpected cuts on tax rates and a surcharge that has also triggered heavy short covering and long build-up. Short term trend is changed to bullish and we may see Nifty crossing 11,700 soon lead by Auto, Capital Goods, Realty and Infrastructure companies." 

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