Corp tax cut "surgical strike" on negative sentiments in economy: Analysts
Dubbing the government's move of slashing income tax rate for companies as a "surgical strike" on negative sentiments in the economy, markets analysts said the step will ease liquidity concerns of India Inc and boost investment.
The reactions came as the government on Friday slashed the income tax rate for companies by almost 10 percentage points to 25.17 per cent and offered a lower rate to 17.01 per cent for new manufacturing firms to boost economic growth rate from a six-year low by incentivising investments to help create jobs.
"This is yet another surgical strike on bears and negative sentiments in the economy which will create an environment of surplus in the hands of corporates for making further investments and ease their liquidity concerns.
"The reduction to 22 per cent in corporate taxes will result in massive release of Rs 1,45,000 crore immediately in the economy which will boost sentiments and bring in real surplus to the corporates," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote said.
According to Mustafa Nadeem, CEO, Epic Research, reducing the corporate tax rate is a big boost for the market.
"This is huge for the market. There were few announcements that were keeping sentiments in check as FM was trying to boost market sentiments and improve the state of the economy by boosting exports, banks consolidation, recapitalisation and so on but reducing the corporate tax rate is a big boost," Nadeem said.
The domestic equity market cheered the move, with the benchmark BSE Sensex skyrocketing a record 1,955.46 points to 38,048.93 in intra-day trade.
Leading bourse BSE also welcomed the move.
" These decisions will be celebrated as historic and will go a long way in improving 'Ease of Doing Business In India' even further," Ashishkumar Chauhan, MD & CEO, BSE said.
"There are several other fiscal measures that have been announced which all point to the government’s commitment to promoting the business activities and enhance job creation manifold. These announcements will further boost the investor confidence and start the investment cycle," he added.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said the measures announced by the finance minister can be described as a 'New Deal' for the Indian economy.
"The psychological stimulus from this 'New Deal' will be higher than the fiscal stimulus. Animal spirits will respond positively. The message from Dalal street is a clear signal. Bold move indeed!," Vijayakumar said.
According to Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, the government's announcement is a prudent move as it will increase the retained earnings of companies and forms the investible surplus for future.
Also, the step will move India to parity with its regional peers thereby removing one of the issues related to manufacturing and exports. The decision also maintains macro prudence by continuing to favour investment cycle rather than consumption cycle, Rakshit added.
S Ranganathan, Head of Research, LKP Securities said: "The FM delivers the right recipe to cheer corporate India. The bulls are back and the sheer velocity of the rally signifies the extent of pessimism that has been prevailing in our markets."
According to Rajiv Singh, CEO, Karvy Stock Broking, after a large number of minor measures, the government has announced a bold and major measure 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," he added.
To provide relief to listed companies which have already made a public announcement of buyback of shares before July 5, 2019, tax on such buyback shall not be charged.
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