FM’s tax booster: Investor wealth surges by Rs 6.82 lakh cr in a day

Shiv Kumar
Tribune News Service
Mumbai, September 20

The stock markets on Friday cheered Finance Minister Nirmala Sitharaman’s announcement slashing corporate taxes with the BSE Sensex making the most single-day gains in more than a decade, closing 5.32 per cent higher at 38,014 points.

According to data available from the Bombay Stock Exchange, the total market capitalisation of all listed companies on the exchange zoomed by Rs 6.82 lakh crore with analysts predicting a spike in corporate profits in the current financial year.

“The piecemeal announcements every Friday weren’t helping so far. This one takes the cake,” said Andrew Holland, chief executive of Avendus Capital Alternate Strategies. He called for the RBI to do its own bit by reducing rates even further.

Among the biggest gainers today were the beaten down automobile sectors with Hero MotoCorp and Maruti Suzuki India zooming 12.52 per cent and 10.89 per cent, respectively. HDFC Bank and Reliance Industries gained 9.06 per cent and 6.42 per cent, respectively.

The rupee to gained 66 paise against the dollar at 70.68 in morning trade.

Reactions from the corporate sector

”Reducing corporate tax rate to 25 per cent is big bang reform. Allows Indian companies to compete with lower tax jurisdictions like the US.

It signals that our government is committed to economic growth and supports legitimate tax abiding companies. A bold, progressive step forward,” says Uday Kotak, CEO, Kotak Mahindra Bank

”Corporate tax rate cut from 30 per cent to 25.2 per cent to spur growth — this is a great move which will firmly revive growth and investment. My hats off to FM @nsitharaman for this bold but most needed move,” tweeted Kiran Mazumdar Shaw, CMD, Biocon.

”India Inc. looks forward to a roller coaster festive season tax bonanza to ride the tide of positive sentiments. This positive sentiment will go long way in resurrecting dying economy, but we also
hope that supertax on the individuals and HUF would also be further rationalised at 35% from currently obnoxious rate of 42% to uplift the end users spirit,” says Dr Niranjan Hiranandani, National President, NAREDCO, and Founder & MD Hiranandani Group.

”The bold and positive move to rationalise the corporate tax structure will kick-start the next big economic upcycle. The new tax rates will help boost corporate earnings during the current fiscal which will lead to the revival of the consumption story. The government has already ensured adequate liquidity to NBFCs, HFCs. These steps will facilitate higher economic expansion which will lead to higher tax revenue to meet its fiscal targets. The fiscal stimulus combined with the likely wealth effect from a buoyant stock market will take India closer to its dream of a US$5 trillion economy, “ Vishal Kampani, Managing Director, JM Financial Group.

”Lately we have been loosing a lot of investments to other Asian countries who had been consistently reducing their corporate tax rate. This will help attract significant FDI and manufacturing to India. Abolition of DDT and going back to classical way of taxing dividends would be an icing on the cake,” says Amit Maheswari, partner, Ashok Maheshwary & Associates LLP.

”The reduction in the corporate tax rate is a welcome move and makes India attractive for new investments. Also, the changes to CSR contributions and the relief on buy-back tax, will address past
concerns and also help in channelling funds towards R&D initiatives, says Frank D’Souza Partner and Leader Corporate and International Tax, PwC India.

“Today’s measures, without exaggeration, has revived the sagging economic situation and has reinfused the “josh” amongst the corporate and capital market fraternity. Apart from the benchmark indices correcting, it was more to do with the sentiment which was hitting new lows day after day. That seems to be dealt with by daring to cut corporate tax, which clearly has a positive impact on the earnings.

“Markets are a slave of earnings. It also paves the way for India attracting its share of foreign flows, which is overdue. Hopefully, with positive trigger for higher earnings and change in prevailing
pessimistic mood, it is imperative for investors to keep the faith and keep investing in companies with sound fundamentals and robust earnings growth, rather than getting carried away and buying duds,” says Devang Mehta, Head, Equity Advisory, Centrum Wealth Management .

“The stock markets responding to the relief measures announced today registered the highest one day gain in a decade. The Govt has chosen to give reliefs via corporate taxes (vs GST reliefs expected by different sectors). For listed corporates, the reliefs will mean 10% increase in EPS for most high tax paying corporates leading to similar rise in indices.

The shortfall in tax revenues will take time to be offset by the higher tax revenues gained on higher consumption/investment by capex.

In the meanwhile the fiscal situation could see some stress which the credit rating agencies may monitor closely. This could have an impact on interest rates unless the compensating liquidity from FPIs and FDI is large enough.

Withdrawing tax on buyback of shares by companies announced before July 05, 2019, restores confidence in fair dealing by the government. Exempting enhanced surcharge on capital gains derived from transactions subject to STT will also be welcomed by the domestic and foreign investors.

“Let us hope that the tougher reforms by way of PSU divestment, land, labour and judicial reforms will now be taken up for these measures to have a fuller impact,” says Dhiraj Relli, MD & CEO, HDFC Securities.