Boosting consumer demand is among the top themes that have been widely discussed by experts to stem the economic slowdown, and economists have been suggesting a cut in the personal income tax rate is the need of the hour.
Media reports are suggesting that the government is studying several options to bring down personal income tax even though there is limited scope for personal income tax cuts in the upcoming Budget, thanks to the government's tight fiscal space.
"We don’t anticipate material demand-side measures in the Budget, which is staring at zero growth in tax revenue this year. Consequently, we expect the government to remain status quo on popular market demands around LTCG, STCG, STT, DTT or the Super-rich tax introduced in the last Budget. Even on the personal income tax front, a complete overhaul seems unlikely," said Amar Ambani, Senior President and Research Head, Institutional Equities at Yes Securities.
Nevertheless, the market is hoping that the government will bite the bullet on the income tax front and will announce some relief. If it materialises, this move will be positive for high dividend companies like MNCs, IT, auto, metals, and oil & gas.
If income tax is reduced, it will enhance the disposable income in the hands of customers and boost demand especially for two-wheelers and PVs in the auto space.
A reduction in personal income tax will lead to higher consumption and will be positive for many sectors, especially autos and consumers, said experts.
Brokerage firm Sharekhan by BNP Paribas is of the view that lower tax slabs would drive up discretionary spending and will be positive for all consumer discretionary companies, including branded apparel, footwear companies, and hotels and restaurants.
Besides, it is also long-term positive for improving demand environment in the housing sector and will be positive for stocks such as DLF, Godrej Properties, Prestige Estates, Oberoi Realty, Brigade Enterprise, Ashiana Housing.
Also positive for building material players like Kajaria Ceramics, Century Plyboards, Astral Poly Technik and Supreme Industries, said Sharekhan.
Let's take a look at some stocks suggested by market analysts:
Expert: Vikas Jain, Senior Research Analyst, Reliance Securities
Ashok Leyland (Target: Rs 111), Hero Motocorp (Target: Rs 3,000), Marico (Target: Rs 400), Emami (Target: Rs 400), Indian Hotels (Target: Rs 165).
Expert: Amit Gupta, Co-Founder and CEO, TradingBells
PVR (Target: Rs 2,500), Aditya Birla Fashion (Target: Rs 300), VIP Industries (Target: Rs 570), Indian Hotels (Target: Rs 180).
Expert: Shrikant Chouhan, Senior Vice-President, Equity Technical Research, Kotak Securities
Bajaj Consumer Care (Target: Rs 350), Colgate Palmolive (Target: Rs 1,700), Marico (Target: Rs 385) and United Breweries (Target: Rs 1,400).
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