Union Finance Minister, Nirmala Sitharaman’s chain of announcements built around corporate tax was welcomed by Dalal Street with the country’s benchmark indexes – Sensex and Nifty 50, bouncing up to 38,014.62 and 11,274.20 respectively. 

The ecstatic reaction to this news caused investors all around to lock high profits as the BSE market capitalisation soared about Rs. 6.81 lakh crore for the day.  As a result, investors recovered their yearly losses.

  1. Bearish auto-stocks reversed and hit top gear as Maruti Suzuki saw the biggest single-day intraday rally in seven years and closed 11% higher on BSE. Its peers in the auto sector also logged massive gains with six of them rising in double-digit percentages. 
  2. HDFC Bank, which was the largest contributor to the Sensex rally, also helped Nifty Bank index record its largest gain ever by contributing 418 points to Sensex rally. HDFC chipped in 130 points. Other major positive contributors include Reliance (240 points), ICICI Bank (193 points) and L&T (134 points). 
  3. A dozen of the BSE100 stocks hit their 52-week high with 71 stocks on the exchange securing their 52-week high as well.
  4. Among the most active stocks in terms of volume, YES Bank was on top with almost 40 crore shares changing hands during the day. Vodafone Idea (18 crore), Ashok Leyland (12 crore) and Tata Motors (7.3 per cent) were among the top. 
  5. Among sectors, IT sector was the sole loser on the NSE. Nifty IT clocked a fall of 0.2% intraday. Big names such TCS (down 1.6 per cent), Infosys (down 1.6 per cent) and Tech Mahindra (0.5 per cent) also ended the day in the red.

Nirmala Sitharaman announced that the new rates would be “comparable with the lowest tax rates in South Asian region and in South East Asia” thus levelling the playing field for the corporate sector and allowing them to actively compete against international businesses.

Here are some key highlights from today’s announcements:

  1. All domestic companies will be permitted to pay corporate tax at the rate of 22% (effective rate 25.17% including cess and additional charge). This will be dependent upon the condition that these companies do not profit of any tax incentives or exclusions. Additionally, no Minimum Alternative Tax (MAT) will be imposed on these companies. 
  2. All new domestic manufacturing companies, incorporated on or after October 1, 2019, will be permitted to pay corporate tax at the rate of 15% (effective rate 17.01%). No MAT will be forced on these companies either. This will be dependent upon the condition that the company doesn’t benefit from any tax incentives or exemptions and commences production by 31st March 2023. Companies that are availing tax holidays at present can join the new regime once their tax holiday period ends.
  3. To ease companies that benefit from any tax incentives or exemptions, the rate of MAT has been diminished from 18.5% to 15%. 
  4. Enhanced surcharge presented by the Finance Act 2019 will not have any bearing on capital gains emerging from sale of equity shares of a company or units of equity-oriented funds or unit of business trust liable to Securities Transaction Tax (STT).
  5. Foreign Portfolio Investors will benefit from not paying an enhanced surcharge on capital gains from the sale of any securities, including derivatives.
  6. With respect to listed companies, no tax will be levied on buyback of shares, which have officially made a public declaration of buyback before 5th July 2019.
  7. The finance minister also announced an expansion in the scope of CSR activities. Companies can now spend 2% of their CSR budget on state or union government incubators, PSUs, state universities, IITs and other public-funded entities.

As a result of this announcement, companies will now be able to generate higher bottom line income with the same levels of business activity thus allowing for higher profitability. Not only will this act as a stimulus for emerging businesses but will also allow listed companies to declare dividends more often thus solidifying investor interest and driving greater investments. In the long run, this cyclic pattern will benefit the overall economy of the country.

Investors should build a good portfolio for the long haul which can ride over cyclical uncertainty and volatility. On the whole, history has shown us that staying invested in difficult times and for a long period of time, the investments will generate higher returns.

Happy Investing!