Foreign investors welcome tax cut

India’s reduction in the corporate tax rate to among Asia’s lowest was welcomed by investors as a boon that may help spur economic growth and company profits.

The effective corporate tax rate in India is now at the same level as Singapore.

“This move means concerns on India are quite well covered for the time being,” said Felix Lam, Hong Kong-based Senior Asia Pacific Equities Fund Manager at BNP Paribas SA. “We have to now see what companies do in terms of investments and what consumers do in terms of spending.”

The benchmark Sensex clocked its biggest gain in a decade, climbing as much as 5.3 per cent after the unexpected reduction. The gains wiped out a year-todate loss that had triggered a so-called correction on Thursday as the gauge registered a 10 per cent drop from a record high touched in June. Foreign investors had sold $4.9 billion of local stocks this quarter through September 18, the biggest quarterly outflow since 1999.

“As well as providing instant EPS upgrades, these tax cuts should provide a boost to business confidence and investment and will create a tailwind for Indian equity performance for the remainder of the year,” said Ross Cameron, Head of Northcape Capital’s Japan office in Tokyo. “India remains the best long-term growth story in EM but the economy has clearly slowed recently.”

The measure may spur more investors to buy Indian stocks, according to Citigroup Inc.

“Expect this rally to have more legs with follow through buying next week, especially after India’s under-performance and foreign outflows recently,” a Citigroup note said.

— Bloomberg