Brokerages Raise Nifty EPS Estimates On Corporate Tax Rate Cuts

Most analysts upped their Nifty earnings per share estimates after Finance Minister Nirmala Sitharaman reduced corporate tax rates on domestic companies.

While most brokerages expect a $20 billion tax-cut stimulus to boost manufacturing, UBS and Edelweiss see consumption lagging in the near term.

Here’s what brokerages have to say about corporate tax cut:

UBS

• Corporate tax rate cut drives Nifty EPS upgrade of 8-10 percent.
• Modi signals growth is now the big focus.
• The move sets up India to benefit as manufacturing shifts from China.
• Consumption, demand boost unlikely in the near-term, if all of the tax cut is passed on to consumers, this would imply a price cut of 0.5 percent in consumer staples, 1-2 percent for autos at the consumer level.
• Revised Nifty base case for June-20 is 12,300 with upside/downside scenarios of 10,300/13,300.
• Remain ‘Underweight’ on autos; move IT to ‘Underweight’ and remain ‘Overweight’ on financials, property, oil & gas.
• Aggressive disinvestment agenda, including privatisation could take care of fiscal worries.
• Bond yields could settle in the range of 6.5-6.75 percent.

Phillip Capital

• Hope corporates pass on some benefit to consumers and reinvest some for business expansion.
• Indian manufacturing to become significantly competitive, expect exports to receive a meaningful boost.
• Upped our Nifty EPS estimate for FY20/21 by 7 percent (each) to Rs 600/705 (vs Rs 562/661 earlier).
• Value the Nifty at a PE of 17.5x-18.0x and retain our long-held target of 11,300-11,700.
• Raise our March 2020 10-year G-sec yield expectation to 6.40-6.65 percent (from 6.00-6.25 percent), accounting for 60-80 basis points repo rate cut from the RBI.
• See 11-12 percent for capital goods, metals, banks, automobiles, consumer durables; 10 percent benefit for infrastructure, FMCG; and 5-7 percent for NBFC, real estate, logistics; and least being cement at 4 percent. There is negligible impact on IT and Pharma.

Morgan Stanley

• Financials and energy sectors are likely to account for the biggest share in total profit boost from the tax rate cuts.
• Estimate FY20 EPS growth at 25 percent (from 13 percent previously).

Kotak

• Expect net profits of the Nifty 50 Index to grow 25 percent for FY20 versus 15 percent earlier.
• FY20 estimated EPS for Nifty 50 Index will increase by 10 percent from previous estimates
• Acceleration in investment in manufacturing, at the same time, we hope that the government takes this opportunity to undertake factor reforms in the areas of land and labour that can unlock productivity further.

Edelweiss

• See 8-10 percent boost to corporate profit growth.
• Reflects government’s focus on improving business and investment climate.
• Government’s move benchmarks taxes globally which will give an investment push.
• Not unduly worried about the fiscal deficit impact.
• Economic response in terms of investment and consumption will be a tad lagged even as expectations run upfront.
• Market upside modest at the Nifty level for which our target of 11600, see more opportunities to take on risk at the stock and portfolio level.

Goldman Sachs

• Raise Nifty 12-month target to 13,200 points from 12,500 points.
• Reiterate positive view on India as Indian corporate tax cuts to revive growth.
• Boost to corporate profitability and revival in investor sentiment.
• Continue to like domestic cyclicals over exporters.

Nomura

• Raise Nifty target for March 2020 to 12,545 points.
• Raise Nifty target on the back of a potential 7 percent earnings increase in FY20/21.
• The move is positive for corporates, economy and market valuations.
• Move should help improve the competitiveness of Indian corporates to an extent.
  

Citi

• Raise Sensex target for March 2020 to 40,500 points from 39,000 points.
• Tax cuts could reset coverage earnings up by as much as 8-9 percent from FY20 onwards.
• Scope of the reforms could also act as a sentiment booster to equities.
• Markets will likely expect more big-ticket announcements.