Corporate Tax Cut Impact: Motilal Oswal Upgrades Earnings Estimates For Nifty Companies
The corporate tax cut triggered foreign investors to rethink about their resource allocations to India, Motilal Oswal says.
Motilal Oswal Financial Services Ltd. has upgraded its earnings growth forecast for Nifty companies by nine percentage points for 2019-20 after India cut corporate tax rates.
Growth in earnings per share will stand at 25 percent/19 percent compared with existing 16 percent/19 percent for FY20/21, the brokerage said in a note. Of the 50 Nifty companies, 21 will see an EPS revision upwards of 10 percent, and nine firms between 5 percent and 10 percent, ceteris paribus (all other things remaining constant), it said.
“The fiscal stimulus resets corporate earnings growth and also helps in the building of risk capital in balance sheets,” Rajat Rajgarhia, managing director and chief executive officer (institutional equities) at Motilal Oswal, told BloombergQuint in an interview. “The bigger impact is how this profitability will flow back into the system—either in the form of lower prices, higher investments or dividends—to stimulate economic activity.”
Private banks, auto and consumers are the biggest beneficiaries, while information technology will not see any incremental positives from the corporate tax cut, the report said.
Last week, the government proposed to cut corporate tax rates for all domestic companies to 22 percent from 30 percent as it aims to revive the economy from a six-year low. The effective tax rate is at 25.2 percent, including all levies. The move, which will cost the government Rs 1.45 lakh crore in revenue, led to a surge in India’s equity indices. It is also expected to boost profit growth, kick-start private capex cycle and make India a favourable investment destination.
The corporate tax cuts, according to Rajgarhia, prompted foreign investors to rethink about their resource allocations to India. “The reform sends a message to the global corporations that India is welcoming them with a very competitive tax structure for them to set up capacities here.”
WATCH | Motilal Oswal’s Rajat Rajgarhia on impact of corporate tax cuts