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Last Updated : Sep 21, 2019 09:00 AM IST | Source: Moneycontrol.com

What to buy? Banks, realty, capital goods, infra cos to benefit the most from FM move

Experts feel that the sentiment has certainly moved from cautious to positive and the sectors likely to benefit the most are banks, capital goods, infra and realty.

Kshitij Anand @kshanand

Pre-Diwali gift, the biggest reform since 1991, bigger than the last 20 budgets and many more words were used to describe the government’s decision to cut the corporate tax. Whatever be the choice of words for the string of measures announced by the finance minister on September 20, the bottom line is bearish sentiment on D-Street just got reversed.

The market saw its biggest blockbuster move on Friday in more than a decade, supported by short coverings and fresh long positions.

The BSE Sensex, which was down more than 4,000 points a day earlier from its record high, reclaimed 38,000 on September 20, a recovery of 50 percent in a single day. The Sensex is 2,000 points away regaining its best-ever performance.

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Experts feel that the sentiment has certainly moved from cautious to positive, and the sectors likely to benefit the most are banks, capital goods, infra, and realty companies.

"A very welcome move for the corporate sector in general and will help boost the investment activities in the manufacturing cycle. The immediate impact on the market is due to unexpected cuts on tax rates and a surcharge that has also triggered heavy short covering and long build-up,” Romesh Tiwari, Head of Research, CapitalAim, told Moneycontrol.

“Short-term trend is changed to bullish and we may see the Nifty crossing 11,700 soon, led by auto, capital goods, realty and infrastructure companies,” he said.

The corporate-tax relief will boost the economy and increase investment and put India on the track to achieve the $5-trillion economy mark.

The steps taken by the government will benefit consumption stocks as well as housing finance companies along with NBFCs. Hence, economy-centric stocks or companies are likely to do better.

"The bold and positive move to rationalise the corporate tax structure will kick start the next big economic upcycle. The new tax rates will help boost corporate earnings during the current fiscal which will lead to the revival of the consumption story,” Vishal Kampani, Managing Director, JM Financial Group, said.

“These steps will facilitate higher economic expansion which will lead to higher tax revenue to meet its fiscal targets. The fiscal stimulus combined with the likely wealth effect from a buoyant stock market will take India closer to its dream of a US$5 trillion economy.” he said.

The move to slash corporate tax rate would lead to earnings growth and leave high cash flows in the hand of companies, Nilesh Shah, MD & CEO, Envision Capital, told CNBC-TV18.

Investors should look at buying companies that were paying high taxes, he said, adding the other sectors that were likely to benefit were consumer, financials and technology services.

The companies in core manufacturing should also benefit because their intrinsic value will go up because of the cuts. “And if the investment cycle does pick up then companies with capex plans would also fall in the investment radar,” Shah said.

Where is Nifty headed?

The index, which broke below 10,800 support on September 19, is back above 11,200 levels in the biggest move seen in a decade. With the new measures, it can touch 12,000 by the end of 2019, experts say.

“This is the historic reform announced by our FM and it is a step in the right direction. The corporate tax cut will expand the bottom line of the companies and the profits will be utilised to start the capex cycle. We further expect RBI to slash at-least 50 bps rate cut till March 20, thereby infusing growth in the system,” Foram Parekh, Fundamental Analyst, Indiabulls Ventures Ltd, told Moneycontrol.

“We believe GDP to bottom-out in Q1 and can clock in a 6.5% GDP growth rate in FY20.  With all the reforms galore taken to date by our FM in the right direction, we expect the Nifty to touch 12000 levels by December 2019,” she said.

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First Published on Sep 20, 2019 02:39 pm
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