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MOSL: Morning India (25/September/19): 1. Financials (Corporate tax rate cut – key trigger for economic revival); 2. Bharti Airtel (Stability emerging)

MOrning India (25/September/19): 1. Financials (Corporate tax rate cut – key trigger for economic revival); 2. Bharti Airtel (Stability emerging)

 

Today’s top research Idea

Financials: Corporate tax rate cut – key trigger for economic revival

• The government's decision to sharply reduce the corporate tax rate from 30% to 22% is expected to boost corporate profitability and help banks in multiple ways as this will help boost investment activity over the medium term. Most private banks under our coverage universe pay taxes at a high rate and thus will witness an earnings upgrade of 8%-14% in FY21.
• HDFCB, KMB, IIB and other retail banks will be the biggest beneficiaries as they pay tax at a high rate (~34%) and carry low stock of deferred tax assets (DTA).
• On the other hand, AXSB and ICICIBC have higher DTAs, which will need to be marked down to the revised tax rate. This will impact their earnings in FY20, while the full benefit will accrue from FY21. Thus, AXSB/ICICBC's earnings are estimated to see a downgrade of ~13%/~14% in FY20 but see an upgrade of ~12%/~8% in FY21. Top ideas: ICICIBC, AXSB and SBIN.

Piping hot news

Trade deal with India soon: Donald Trump

India and the US will soon have a trade deal to be followed by a bigger agreement later, US President Donald Trump said on Tuesday, suggesting that the two nations may be close to resolving current disputes. “We are doing very well. I think very soon we will have a trade deal. We will have a larger deal later on,” Trump said during a joint press conference with Prime Minister Narendra Modi after their bilateral meeting in New York on the sidelines of the UN General Assembly on Tuesday.