1.45 lakh cr Rs to have a trigonometric multiplier impact on the economy; bet on these 20 stocks may give good profit have to look
Stewart & Mackertich has upgraded its FY20 Nifty and Sensex EPS growth target to 22-25 % against current estimates of 8-11 %
The Finance Ministry seems to have finally found some resolve against a dwindling economy after the Sep 20 announcements about of corporate tax cuts.
The fiscal boost comes at a time when India Inc had been facing a severe slowdown for many quarters which resulted in several earning downgrades, forcing the equity market 11 % off its record highs.
According to experts, the Rs 1.45 lakh cr booster is probably the biggest step taken by a government after the 1991 economic reforms when erstwhile Finance Minister Manmohan Singh liberalised the economy to the world.
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 cr loss to government coffers is a simple arithmetic loss which can be made good by measures of divestment through privatization and others, the 1.45 lakh cr Rs that remains with corporates will have a trigonometric multiplier impact on the economy," Stewart & Mackertich Wealth Management said.
In a surprise move, the Finance Minister Nirmala Sitharaman cut the corporate tax rate to 25.17 % from 35 % (inclusive of surcharge and cess).
The FM also reduced minimum alternate tax (MAT) to 15 % from 18.5 %, announced option for new manufacturing companies incorporated from Oct 1 this year, to pay income tax at 15 %. Moreover, the enhanced surcharge on capital gains made by FPIs/domestic investors was also discarded, positioning India competitively against the Asian counterparts from a mid to long term perspective.
The reduction in corporate tax rate means the companies will have surplus cash which can be deployed back in the economy through capex, investment, higher disbursement, job and demand creation and consumption.
"It has also left behind a message that the government now recognizes 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," Vikram Kasat, Head Advisory at Prabhudas Lilladher said.
Despite a string of measures over the past few weeks, the mood in the market remained sombre before the September 20 booster. Domestic slowdown across sectors, global recession fears and escalating US-China trade war added to the worries.
Since Friday's announcements, the Nifty and Sensex logged their biggest 2-day gains, rising over 8 %.
"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 Nifty and Sensex EPS growth for FY20 to 22-25 % against current estimates of 8-11 %, thereby re-rating Nifty and Sensex higher.
Foreign institutional investors, who sold more than Rs 30,000 cr in the current financial year so far, are likely to change their stance on the Indian market and flows are likely to increase going forward, according to the research firm.
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 earning are likely to pick up and the economy is expected to get back on track, the brokerage has picked 10 stocks that may benefit the most 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, Bharti Airtel, Federal Bank, M&M Financial, Ashok Leyland, PI Industries and Oberoi Realty are our top picks," said Motilal Oswal which expects FII flow to respond positively to these measures and grow as economic activity gets better.
Experts feel the Rs 1.45 lakh cr may impact the country's fiscal deficit for coming years but the government may manage the same through divestment/privatization.
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