Rise in capex unlikely despite corporate tax rate cut, warns Credit Suisse

"Nearly 90 per cent of the savings are likely to be used for deleveraging or would be retained," it said

Companies that benefit the most from corporate tax rate cut are very unlikely to use those savings to do new investments, and would most likely retain those earnings to improve cash, or deleverage their financials, Credit Suisse has noted in its market strategy report.

While 40 per cent of the companies are likely to use the savings to reduce product prices or those of services, only 8 per cent of the overall savings would be passed on to consumers in the form of reduced prices as a result due to their small size, it said.

It said that the companies it surveyed (having market capitalization of $1.1 trillion) would save Rs 41,800 crore worth of tax in FY20, and Rs 48,100 crore in FY21.

But despite this boost to sentiment, downward momentum of economic activity would continue for some time, it said.

“Nearly 90 per cent of the savings are likely to be used for deleveraging or would be retained,” the note said.

Private banks, energy sector companies, and PSU banks would garner more than half the corporate tax savings.

But “banks are not likely to grow their loans; materials, energy, industrials are not planning new capex,” Credit Suisse said.