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HomeEconomyIndia Inc earnings seen jumping 10% after Nirmala Sitharaman’s tax cut

India Inc earnings seen jumping 10% after Nirmala Sitharaman’s tax cut

Modi govt move may improve earnings, margins & help initiate capacity expansion before a potential improvement in consumer demand.

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Mumbai: India’s key stock gauges’ earnings estimates have been raised by as much as 10% by analysts after Finance Minister Nirmala Sitharaman delivered a $20 billion tax break in her latest attempt to boost economic growth from a six-year low.

The surprise reduction in corporate tax drove a 5.3% surge in the S&P BSE Sensex Index to 38,014.62 on Friday, its biggest gain since May 2009. The government’s move may improve earnings, margins and help initiate capacity expansion before a potential improvement in consumer demand in the festival season starting next month, according to analysts and fund managers. The NSE Nifty 50 Index also climbed 5.3% Friday, to 11,274.2.

“Consensus for EPS impact purely on account of the tax change is 7-10%” analysts at Axis Mutual Fund wrote in a note last week. “A demand recovery during the upcoming festival season will further improve corporate earnings over the next few quarters,” the note added.

Here is what analysts are saying:

Bank of America

  • Calculations suggest the Nifty index’s 1-year forward consensus earnings estimate for FY20 could rise by 7%
  • Capital expenditure may only pick up with some lag
  • Prefers bank stocks on hopes of improved businesses


  • Cut in the corporate tax rate could increase earnings of companies under coverage by as much as 8-9% from FY20
  • Investors “will likely expect more big-ticket announcements”
  • Raises March 2020 Sensex index target to 40,500 from 39,000
  • Increases overweight on financial services and underweight on consumer, IT and utilities stocks

ICICI Securities

  • Analysis of Nifty earnings suggest an EPS upgrade of 6% each for FY20, FY21
  • Expects Nifty EPS to grow at a CAGR of 20.3% in FY19-21 from 16.9% before the cut
  • Banking and consumer stocks likely to grow at CAGR of 48.2% and 18%, respectively
  • Software exporters, pharma not expected to see any upgrades due to existing lower tax rates
  • Nifty target based on FY21 EPS is 13,150, Sensex 43,000

Credit Suisse

  • Of the total revenue foregone, 58% of will be borne by the federal government while 42% will be a loss for states
  • Among consumer stocks, large tax-cut gains for Avenue Supermarts, Colgate, Nestle, Page Industries, Asian Paints, Crompton, Jubilant Foodworks, Britannia, Hindustan Unilever
  • Lower gains seen for Marico, Titan, Dabur, Emami, Godrej Consumer
  • Expects most consumer companies to retain gains, at best spread over two years
  • Industrial companies with shorter production cycles, like ABB, Siemens, Cummins to benefit in near term; L&T and those with longer cycles to benefit over longer term
  • Auto companies may ask ancillary companies to pass on benefits to customers in current weak demand environment
  • Banks to see 10%-12% earnings impact, RoEs to improve by 100-200 bps
  • Prefers better capitalized banks to capture pick-up in growth

Kotak Institutional Equities

  • Expects profit for Nifty 50 Index to grow 25% for FY20 and 19% for FY21
  • Automobiles, banks, capital goods, staples, diversified financial and energy sector to be key beneficiaries
  • Electric utilities, software exporters and pharma to see little or no impact
  • FY20 EPS for Nifty 50 Index will increase by 10% from previous estimate

Philip Capital

  • Expects some benefits to be passed on to consumers and some getting reinvested in business expansion
  • Expects exports to receive a meaningful boost in the long-run
  • Upped Nifty EPS estimate for FY20/21 by 7% each; retain long-held target of 11,300-11,700 – Bloomberg

Also read: Tax cut gives Modi perfect pitch to win American investments


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