India Inc. earnings get up to 10% boost from corporate tax cut

New Delhi: India’s key stock gauges’ earnings estimates have been raised by as much as 10 per cent 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 per cent 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 per cent on Friday, to 11,274.2.

“Consensus for EPS impact purely on account of the tax change is 7-10 per cent” 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.

The tax cuts have also prompted Morgan Stanley to raise its June-2020 target for Sensex back to 45,000 after slashing it to 40,000 just two weeks ago.