Sunday, September 22, 2019

Moody's : Rate cut credit negative for sovereign

Rating agency Moody's says that the government's decision to reduce the base corporate tax rate to 22 per cent from 30 per cent as part of stimulus measures to revive slowing economic growth is credit positive for companies because it will enable them to generate higher post-tax incomes.

However, it is credit negative for the sovereign as it aggravates mounting risks for the government in meeting its fiscal deficit target.

Among Moody's rated non-financial companies in India, commodity and information technology  services companies will benefit most from the tax rate cut. But the degree of strengthening in corporate credit profiles will depend on whether companies reinvest surplus earnings into their businesses, or use them to reduce debt or to boost shareholder returns.

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