HNIs parked in other assets may return to equity

HNIs have lost heavily in PMS investments in the recent small and mid-cap crash.

Wealthy stock market investors or high networth individuals could be lured back into equity market investing after the government slashed corporate tax rates to an effective 25.17% and proposed a radically new rate of 15% for new companies wishing to invest in manufacturing.

The stock market soared in anticipation of higher profits and brokerages upped earnings estimate for the ongoing year and forecast higher growth. HNIs, who had lost heavily in portfolio management schemes focused on small-and midcap stocks in the past one-and-a-half years, may be tempted to invest once again, feel experts.

“The move by the finance minister will have longer term implications on corporate earnings and revival of the investment cycle,” said Dhiraj Sachdev, chief investment officer, Roha Asset Management. “It will make India cost competitive compared to other south east Asian countries. An earnings upgrade can happen and bring back equity flows.”


HNIs were disappointed with GDP growth slipping to a five-year low of 5% and shifting to other asset class like gold and fixed income. As midand small-cap stocks fell sharply, many investors suffered huge losses. This led to many investors postponing equity investments through the PMS and AIF routes with some even withdrawing their money. Distributors, however, believe this latest move by the finance minister could bring back some investors to the market.

Fund managers expect earnings of companies to move up followed by a revival of the capex cycle. As investors feel confident of earnings coming back, they are likely to commit more to equities.“The recent tax move is likely to provide a boost to the economy. We are revising our GDP growth forecast to 6.5% from 6.3% for 2019-20. The corporate tax cut is likely to not only attract greater foreign investments but could also support some revival in the capex cycle,” says Abheek Barua, chief economist, HDFC Bank.

“We believe, this push is a vital sentiment booster and will positively impact earnings of companies in our portfolio by 10-12% across our portfolios. Market consensus for EPS impact purely on account of the tax change is 7-10%. A demand recovery during the upcoming festival season will further improve corporate earnings over the next few quarters,” says Jinesh Gopani,, head (equities), Axis Mutual Fund.
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