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Effective tax outgo falls by 28% for biggies, by 13% for smaller firms

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Nifty jumped over 5 per cent in intraday trade led by gains in 44 of its 50 constituents.
NEW DELHI: Bigger companies are set to benefit more from the corporate tax cuts as the effective tax for them will come down by up to 28 per cent. Smaller companies will be saving only up to 13 per cent.

In crude terms, India’s top 50 companies that paid a total tax of Rs 1.65 lakh crore for the year ended March 2019 will pay Rs 46,000 crore less in taxes next year, assuming their profit and revenue levels stay the same.

The market recognised the fact on Friday, and Nifty and Nifty Next50 stocks, which comprise bigger companies, outperformed the broader market, especially the smallcaps.

Nifty jumped over 5 per cent in intraday trade led by gains in 44 of its 50 constituents. Similarly, in Nifty Next50, all but two stocks registered gains, some even in double-digit percentages.

Analysts say the tax cuts triggered huge short covering in top stocks. “Larsen & Toubro, Maruti Suzuki, Mahindra & Mahindra, Kotak Mahindra Bank, ICICI Bank, HDFC Bank, HUL, Dabur, HDFC, Baja Auto, Hero MotoCorp, Colgate Palmolive, UltraTech and BEL are few high tax-paying companies, which have seen huge short covering,” said AK Prabhakar, Head of Research, IDBI Capital Market.

Stocks of these top companies, which had been beaten down in the last few months, came back strongly on Friday. Maruti Suzuki surged over 11 per cent, Bajaj Finance and Tata Steel jumped about 9 per cent each. ICICI Bank, HDFC Bank surged over 8 per cent.

Analysts expect financial and consumer companies to be major beneficiaries of the tax cuts. “Among the sectors, banking, FMCG, consumer durables and auto companies will be major beneficiaries” said Rajiv Singh, CEO, Karvy Stock Broking.

At 1400 hours (IST), all sectoral indices traded in the green, led by auto, bank, consumption and metal. Nifty Auto rallied 8.5 per cent, Nifty Bank 7.7 per cent, Nifty Metal 5.5 per cent and Nifty FMCG 4.5 per cent.

Honchos of India Inc welcomed the decision.

“The government has taken a major step that suddenly focuses on the importance of manufacturing and focuses on making manufacturing a very attractive avenue for investment. Ultimately what you want is a lot more investments and it is what they (govt) have said about taxation on new companies. I think it is a very innovative and an extremely important step,” said RC Bhargava, Chairman, Maruti Suzuki.

Anil Agarwal, Chairman, Vedanta, said there cannot be a better day for India Inc. “It is an amazingly bold move by the Modi government. The tax level has been brought down to global level and on the top of it, incentives have been given for new industries. This will boost sentiment.”

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