India Inc. Earnings Get Up to 10% Boost From Modi’s Tax Cut
A pedestrian walks past the Bombay Stock Exchange (BSE) building in Mumbai, India, on Tuesday, Dec. 11, 2018.(Photographer: Dhiraj Singh/Bloomberg)

India Inc. Earnings Get Up to 10% Boost From Modi’s Tax Cut

(Bloomberg) -- India’s key stock gauges’ earnings estimates have been raised by as much as 10% by analysts after Finance Minister Nirmala Sitharaman delivered a $20 billion tax break in her latest attempt to boost economic growth from a six-year low.

The surprise reduction in corporate tax drove a 5.3% surge in the S&P BSE Sensex Index to 38,014.62 on Friday, its biggest gain since May 2009. The government’s move may improve earnings, margins and help initiate capacity expansion before a potential improvement in consumer demand in the festival season starting next month, according to analysts and fund managers. The NSE Nifty 50 Index also climbed 5.3% Friday, to 11,274.2.

“Consensus for EPS impact purely on account of the tax change is 7-10%” analysts at Axis Mutual Fund wrote in a note last week. “A demand recovery during the upcoming festival season will further improve corporate earnings over the next few quarters,” the note added.

The tax cuts have also prompted Morgan Stanley to raise its June-2020 target for Sensex back to 45,000 after slashing it to 40,000 just two weeks ago.

India Inc. Earnings Get Up to 10% Boost From Modi’s Tax Cut

Here is what analysts are saying:

Bank of America

  • Calculations suggest the Nifty index’s 1-year forward consensus earnings estimate for FY20 could rise by 7%
  • Capital expenditure may only pick up with some lag
  • Prefers bank stocks on hopes of improved businesses


  • Cut in the corporate tax rate could increase earnings of companies under coverage by as much as 8-9% from FY20
  • Investors “will likely expect more big-ticket announcements”
  • Raises March 2020 Sensex index target to 40,500 from 39,000
  • Increases overweight on financial services and underweight on consumer, IT and utilities stocks

ICICI Securities

  • Analysis of Nifty earnings suggest an EPS upgrade of 6% each for FY20, FY21
  • Expects Nifty EPS to grow at a CAGR of 20.3% in FY19-21 from 16.9% before the cut
  • Banking and consumer stocks likely to grow at CAGR of 48.2% and 18%, respectively
  • Software exporters, pharma not expected to see any upgrades due to existing lower tax rates
  • Nifty target based on FY21 EPS is 13,150, Sensex 43,000

Credit Suisse

  • Of the total revenue foregone, 58% of will be borne by the federal government while 42% will be a loss for states
  • Among consumer stocks, large tax-cut gains for Avenue Supermarts, Colgate, Nestle, Page Industries, Asian Paints, Crompton, Jubilant Foodworks, Britannia, Hindustan Unilever
    • Lower gains seen for Marico, Titan, Dabur, Emami, Godrej Consumer
  • Expects most consumer companies to retain gains, at best spread over two years
  • Industrial companies with shorter production cycles, like ABB, Siemens, Cummins to benefit in near term; L&T and those with longer cycles to benefit over longer term
  • Auto companies may ask ancillary companies to pass on benefits to customers in current weak demand environment
  • Banks to see 10%-12% earnings impact, RoEs to improve by 100-200 bps
  • Prefers better capitalized banks to capture pick-up in growth

Kotak Institutional Equities

  • Expects profit for Nifty 50 Index to grow 25% for FY20 and 19% for FY21
  • Automobiles, banks, capital goods, staples, diversified financial and energy sector to be key beneficiaries
  • Electric utilities, software exporters and pharma to see little or no impact
  • FY20 EPS for Nifty 50 Index will increase by 10% from previous estimate

Philip Capital

  • Expects some benefits to be passed on to consumers and some getting reinvested in business expansion
  • Expects exports to receive a meaningful boost in the long-run
  • Upped Nifty EPS estimate for FY20/21 by 7% each; retain long-held target of 11,300-11,700

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