Tax on domestic companies will be slashed to 22 per cent from 30 per cent, Finance Minister
The effective new rate will be 25.2 per cent including all additional levies and is applicable only for companies. The move follows announcements over the past month to boost consumer demand, bolster imports and attract investments into the country.
“The measures aren’t a patchwork but are real agents that will help revive growth,” Rajiv Singh, Hyderabad-based chief executive officer at Karvy Stock Broking Ltd. “The fiscal deficit is a concern but at this time, growth should take priority.”
India’s stock market saw a heavy sell-off this quarter with foreign funds dumped a net $4.9 billion of the nation’s stocks from June to Sept. 18, on course for the biggest quaterly exodus since at least 1999. The Sensex index entered a correction on Thursday after falling 10 per cent from a high reached on June 3.
Industry groups has been demanding that the government should use the fiscal space afforded to it last month by a more than $24 billion windfall from the Reserve Bank of India to revive the economy. The government’s measures to reverse the slowdown have so far come in tranches and were seen as inadequate.
Here’s what market participants are saying:
A.K. Prabhakar, head of research at IDBI Capital Market Services:
“High tax-paying companies like Maruti Suzuki, HDFC Bank are just zooming. I have not seen this kind of rally in recent years, besides an election day. It will arrest the downtrend in sentiment, and auto companies are among the highest tax payers, so this will help some of the sectors that have been worst hit recently.”
Vaibhav Sanghavi, co-chief executive officer at Avendus Capital PBC Markets Alternate Strategies LLP in Mumbai:
“Investor sentiment will turn positive as the tax cut will help corporate profitability, increase business confidence and thus throws open a prospectus of better valuations of firms.”