The government's move of slashing corporate tax rate will have a chain effect and bodes well for the market in the long term, Rajat Rajgarhia, Managing Director & CEO of Motilal Oswal Financial Services, told CNBC-TV18.
"There is a chain reaction that comes out of such moves. The money that the companies save because of lower tax rates either gets reinvested or gets paid to shareholders in terms of high dividend. Many companies in the consumption bracket are going to see their operations over a period of time coming out of the tax incentive zone, so the benefit for them could be partial in FY20," said Rajgarhia.
He underscored that the market will quickly try to asses how the benefits are going to get further enhanced in the near future.
"The market is cheering the prospects of enhanced earnings per share (EPS), but the chain effect will be way bigger," he said.
Rajgarhia said private banks are expected to be the immediate beneficiaries of the corporate tax cut.
"Most of the private banks at the top end of the bracket from the tax rate point of view will immediately benefit from this," said Rajgarhia.
Shares of HDFC Bank surged 10 percent on BSE on September 20, marking their highest intraday gain in over 30 months, following the government's announcement.
Finance Minister Nirmala Sitharaman proposed to slash corporate tax for domestic companies and new domestic manufacturing companies today.
Ordinance for cutting tax rate has been passed and corporate tax rate will be 22 percent without exemptions, she said, adding effective corporate tax rate after surcharge will be 25.17 percent.
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