Corporate tax cut: Brokerages raise their targets for Sensex, Nifty

These measures may be just what is needed to kick start the long-awaited capex cycle, said Chris Wood in his 'Greed and fear' report.

In a U-turn, the government has also removed the additional surcharge on capital gains for all classes of investors introduced in July. Also, listed companies that announced a buyback before July 5 will not be subject to the new buyback tax introduced in July.

'Greed and fear' index raised the weight of India by 3 percentage points in its Asia Pacific ex-Japan relative-return portfolio by reducing 2 percentage points from Indonesia and one percentage point from China.

Other global brokerages have also revised their strategies and index targets post the announcement.

Corporate tax cuts create room for improved earnings growth, Morgan Stanley said in a report. It raised earnings growth estimates for Sensex to 25 percent in FY20 and 23 percent in FY21. The brokerage raised Sensex target to 45,000 by June 2020.

Citi also feels that slashing of corporate tax could reset coverage earnings up by as much as 8-9 percent adding that the markets will likely expect more big-ticket announcements going forward. The ambitious scope of the reforms could also act as a sentiment booster to equities, it added. The brokerage also raised its March 2020 Sensex target to 40,500 from 39,000.

Among other brokerages, UBS also increased its June 2020 target for Nifty to 12,300, while JPMorgan set a March 2020 target of 12,200 for Nifty.

Goldman Sachs India raised its Nifty target to 13,200, a 700 points bump from its previous target and Nomura's March 2020 target for Nifty is raised to 12,545.

According to Macquarie, the government has brought the economy back in clear focus with $20 billion in corporate tax cuts, the brokerage said, adding that a 70 basis point fiscal deficit slippage is tolerable. The brokerage recommends adding domestic cyclical like banks, industrials, and autos while remaining 'underweight' on consumers.