Top Stock Picks after Finance Minister announced corporate tax rate cuts

Corporate India Tax Bonanza – A dream come True, Igniting the dreams of many!

In a surprise move, the Finance Minister announced corporate tax rate cuts, more than what was projected by her predecessor in July 2014, the NDA’s first Budget. It is one of the biggest reforms that India has seen after liberalization of Indian Economy and it is likely to fuel the economic growth and meet the target set by the Government for a $5trillion and $10 trillion economy by 2025 and 2030.

Nifty and Sensex gained 5.32% on Friday, September the 20th, 2019, closing at 38014.62 and 11274.20, highest gains in almost a decade. Despite the baby steps of modifications and changes over the past 3 weeks, the somber to bearish mood prevailed in the market after the presentation of Union Budget on July 5th, failed to die. Added to the woes were domestic slowdown across sectors, global slowdown news flows, trade war between US-China, and of late spike in crude oil prices.

Think of it – Nifty and Sensex is higher just by around 6% from its recent lows, which reflected all negative political and economic sentiments, earnings downgrades, global negative sentiments, recent spike in oil prices and risk aversion by FIIs and many more. The tax move itself has led to revision of earnings upgrades, hence we believe that Nifty, Sensex is set for a higher trajectory and a continued rally upto 12500 and 42000 respectively is likely in the next 3-6 months.

Key outcome of the measures announced by the Finance Minister:

 Upgrade of Nifty and Sensex EPS growth for FY20 to 22-25% against current estimates of 8-11%, thereby re-rating Nifty and Sensex higher

 Reduction in corporate tax rates is likely to set the virtuous cycle of surplus with companies for investment, higher disbursement, job and demand creation and consumption

 The FII investors are likely to change their stance on the Indian market and flows likely to increase going forward

 Though the fiscal measure is likely to call for concern by rating agencies as India’s Fiscal deficit is likely to increase by 40-50bps, factoring in excess payout from RBI, the Government is likely to take an aggressive stance on privatization of some of the PSU’s. We believe BPCL’s privatization may be around the corner along with some other PSU’s

 FDI investments in India is set to increase as India becomes a competitive destination for manufacturers among some Asian Peers

 Death knell for parallel economy likely as corporate tax rates of as low as around 17% would make little sense to build illegal tax haven structures, broadening the formal economy

 While the INR1.45 lac crores loss to Government coffers is a simple arithmetic loss which can be made good by measures of divestment through privatisation and others, the INR1.45 lac crores that remains with corporates will have a trigonometric multiplier impact on the economy

We expect Nifty and Sensex to take support around 11200 and 37700 and to trend higher in the coming days. We believe Nifty is likely to see a conservative level of 12500 and Sensex 42000 by March 2020. Detailed sector and stock impact mentioned below.

Top Picks – Titan, Bata, Siemens, L&T, HDFC Bank, ICICI Banks, Engineers India, Indian Hotels, Thermax, Colgate,