Stock Analysis, IPO, Mutual Funds, Bonds & More

It’s a bazooka, should revive animal spirits in economy, says Dalal Street

The rate of Minimum Alternative Tax has been reduced from 18.5 per cent to 15 per cent.

, ETMarkets.com|
Last Updated: Sep 20, 2019, 12.20 PM IST
Sitharaman on Friday proposed to slash corporate tax for domestic and new local manufacturing companies.
Mumbai: Analysts applauded Finance Minister Nirmala Sitharaman’s corporate tax cuts and said they were a step towards reviving animal spirits in a sluggish Indian economy.

Sitharaman on Friday proposed to slash corporate tax for domestic and new local manufacturing companies. The effective rate will be 25.17 per cent, including surcharges and cess. The measures will be implemented through an ordinance, she said.

“It’s a very essential measure. It will revive animal spirits in the economy. Also, the MAT announcement is very positive,” said Deven Choksey, Group Managing Director at KR Choksey Investment Managers.

“FIIs (foreign institutional investors) will look at India closely as tax rates here are getting very comparable to global standards,” he said.

The FM said the new provision has been inserted into the Income-Tax Act with effect from fiscal year 2019-20 to promote growth. It will allow any domestic company to pay income-tax at 22 per cent subject to the condition that it will not avail any other incentive or exemptions The rate of Minimum Alternative Tax (MAT) has been reduced from 18.5 per cent to 15 per cent. The objective is to provide relief to companies that continue to avail exemptions and incentives, the Finance Minister said.

“In a major boost to revive flagging animal spirits and position India as one of the most attractive business destinations, the government has announced a slew of measures that would act as a force multiplier for the flagging economic engine,” said Ajay Bodke CEO of portfolio management services at Prabhudas Lilladher.

“By slashing corporate tax rates, the government has rolled out a red carpet that would ensure hundreds of billions of dollars in FDI and FII flows over the medium term. It is in a true sense an early arrival of festival of lights (Diwali) and banishment of long period of darkness & gloom bothering the Indian economy,” Bodke said.

In reaction, benchmark equity indices Sensex and Nifty rallied more than 4 per cent each, logging strong gains on the bourses after a long hiatus.

“After a number of minor measures, the government has announced a bold and major package to revive animal spirits. The high corporate tax rate meant that Indian companies were not competitive and this move helps address this and shall also boost FDI,” said Rajiv Singh, CEO of Karvy Stock Broking.

“Reduction of corporate tax has been on the agenda for a while, and this should help in boosting the capex cycle, also it gives companies space to cut prices to boost demand. The corporate tax cut should go a long way in a revival of the economy,” he said.

Singh expects banking, FMCG, consumer durables, and auto companies to be major beneficiaries of the tax moves. “The manufacturing sector will become attractive with a 15 per cent corporate tax rate for new manufacturing companies in India especially in the times when the world is in the phase of trade wars,” he said.

Others echoed similar sentiments. “It’s a big bazooka and a very positive step,” Vaibhav Sanghavi, co-CEO, Avendus Capital Public Markets Alternative Strategies. “It has the capability of reviving the economy,” he added.

“The government has taken a bold and proactive step to bring much needed tax reforms , which will boost investment and also aid to private cycle capex,’ said Sanjeev Hota, Head of Research, Sharekhan. “The lowering of corporate tax rate will also widen the tax net and will gradually bring more revenues to government. Overall, the move will make Indian companies globally competitive, a welcome step to arrest slowdown and lift up the market sentiments,’ he said.

Also Read

View: Animal spirits in India show the slowdown may be bottoming out

Animal spirits are hushed as consumer demand remains elusive

Festival of Lights fails to revive India’s sullen animal spirits

How trust deficit at multiple levels is hampering animal spirits and growth in India

The animal spirits induced by tax cuts may first show in IPO market

Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service