Green shoots in the offing? Foreign brokerages see Nifty, Sensex touch all-time highs by 2020 after corporate tax cut

The recent measures by the government have made most foreign brokerages rethink their strategies on India.

The reduction in the corporate tax rate, the abolition of enhanced tax surcharge and updated norms of FD and I CSR spending are some of the steps that experts think will boost the market and the economy in the long term.

Foreign financial firm Morgan Stanley has raised the target for Sensex to 45,000 by June 2020, saying that it sees green shoots in the offing.

“Corporate tax cuts create room for improved earnings growth, so we raise earnings growth estimates for Sensex to 25 percent in FY20 and 23 percent in FY21,” said Morgan Stanley.

Citi has raised March 2020 target for Sensex to 40,500 from 39,000.

“Slashing of corp tax could reset coverage earnings up by as much as 8-9 percent. The ambitious scope of the reforms could also act as a sentiment booster to equities while markets will likely expect more big-ticket announcements going forward,” said Citi.

Goldman Sachs has raised Nifty50 target to 13,000 from 12,500 while JP Morgan has raised Nifty’s target to 12,200. Nomura has also raise March 2020 Nifty target to 12,545.

CLSA said lower corporate tax rate implies a 7-8 percent earnings per share (EPS) upgrade for Nifty winners would be capex players like ICICI, Axis, L&T and Adani Ports.

Credit Suisse said sharp cut to the corporate tax rate is aimed to make India globally competitive, but it won’t help near-term economic momentum.

“Tax cut significantly boosts medium-term investment potential while it improves sentiment, It doesn’t help revive near-term economic momentum. The market may be choppy, as weak earnings meet structural changes. September 2019 results may have bleak commentary despite good earnings growth,” said the foreign brokerage.

Bank of America Merrill Lynch (BofAML) thinks Nifty’s one year forward EPS estimates for FY20 could see an upgrade of 7 percent.

The foreign financial firm said that the reduction in corporate tax will likely increase cash flow for the companies.

However, it also believes that the capex may only pick up with some lag, depending on the need for new capacity.

“We prefer financials, which could benefit from improving corporate investment cycle,” BofAML said.

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