After the September 20 announcements that went in with a banger in the shape of corporate tax cuts, the Finance Ministry appears to have finally found some resolution against a dwindling economy.
The fiscal increase emerges at a moment when India Inc faced a serious slowdown for many decades that led in several gaining downgrades, pushing the equity market off its historic peaks by 11 percent.
The Rs 1.45 lakh crorebooster, according to specialists, is likely the largest move a state took after the economic reforms of 1991, when former Finance Minister Manmohan Singh liberalized the world economy.
“The move shall help India achieve the $5 trillion economy dream and may also set us up to become a $10 trillion economy by 2030”, they said.
“While the Rs 1.45 lakh crore loss to government coffers is a simple arithmetic loss which can be made good by measures of divestment through privatisation and others, the Rs 1.45 lakh crore that remains with corporates will have a trigonometric multiplier impact on the economy,” Stewart &Mackertich Wealth Management said.
The Finance Minister NirmalaSitharaman reduced the corporate tax rate from 35 percent (including surcharge and cessation) to 25.17 percent in a sudden step.
The FM also decreased the minimum alternative wage (MAT) from 18.5 percent to 15 percent, announced the possibility to settle income tax at 15 dollars for fresh manufacturing firms established from 1 October this year. In addition, the improved capital gains surcharge from FPIs / domestic shareholders has also been removed, placing India competitively against Asian peers from a mid-to long-term view.
Furthermore, the FM reduced the minimum option salary (MAT) from 18.5 percent to 15 percent, announcing the option of settling income tax at $15 for new manufacturing companies set up from 1 October this year. Furthermore, the enhanced surcharge on capital gains from FPIs / domestic investors has also been abolished, putting India competitively against Asian colleagues from a mid-to long-term perspective.
“It has also left behind a message that the government now recognises the structural aspect of weakness and will take bold measures to counter it. Very similar to how Trump did 3 years ago in the US. Many of these measures will allow short term improvement in sentiment even if the real benefits accrue medium term,” VikramKasat, Head Advisory at PrabhudasLilladher said.
Despite a series of interventions over the previous few decades, before the September 20 gathering, the mood on the market stayed dark. The worries were linked by domestic slowdown across industries, threats of global recession, and escalating trade war between the US and China.
The Nifty and Sensex have registered their largest 2-day profits since Friday’s announcements, increasing over 8 percent.
“The tax move itself has led to a revision of earnings upgrades, hence we expect Nifty and Sensex to take support around 11,200 and 37,700 and to trend higher in the coming days. We believe Nifty is likely to see a conservative level of 12,500 and Sensex 42,000 by March 2020,” Stewart &Mackertich said.
The brokerage upgraded its growth of Nifty and Sensex EPS for FY20 to 22-25 weeks against present projections of 8-11 percent, resulting in greater ratings of Nifty and Sensex.
Foreign institutional investors, who in the present financial year have purchased more than Rs 30,000 crore so far, are inclined to modify their position on the Indian market and returns are inclined to improve in the future, according to the study company.
“FDI investments in India is also set to increase as the country becomes a competitive destination for manufacturers among some Asian Peers”, it said.
As profits are likely to keep up and the industry is anticipated to get home on path, the brokerage has selected 10 stocks that could profit Titan Company, Bata, Siemens, L&T, HDFC Bank, ICICI Bank, Engineers India, Indian Hotels, Thermax and Colgate.
“SBI, UltraTech Cement, Eicher Motors, ICICI Prudential Life, BhartiAirtel, Federal Bank, M&M Financial, Ashok Leyland, PI Industries and Oberoi Realty are our top picks,” said MotilalOswal which expects FII flow to respond positively to these measures and grow as economic activity gets better.
Experts believe that the Rs 1.45 lakh crore may affect the fiscal deficit in the country for years to come, but the state can handle the same through divestment / privatisation.
“Though the fiscal measure is likely to call for concern by rating agencies as India’s fiscal deficit is likely to increase by 40-50bps, factoring in excess payout from RBI, the Government is likely to take an aggressive stance on privatization of some of the PSUs. We believe BPCL’s privatization may be around the corner along with some other PSUs,” Stewart &Mackertich said.
VinayPandit, Head – Institutional Equities at IndiaNivesh also said “the stated impact will have to be filled up by significantly large divestments in PSUs, a listing of some large ones like IRCTC, divestment of landholdings under the central government and their PSUs, amongst others.”
“The time is running out and the government will have to move fast on these steps. One can expect the pace of divestment now to increase significantly,” he added.