Lower corporation tax rates add colour to paint sector's prospects

Earnings upgrades apart it could lead to higher volumes of premium decorative paints

The reduction in the corporation tax rates have boosted the earnings and growth potential of decorative paint companies, which were already (before the cut) an outlier in an otherwise sagging consumption basket.

Factoring in an expected 10-12 per cent direct push to earnings following the lower tax rates announced last week, the stocks of paint majors — Asian Paints, Berger Paints, and Kansai Nerolac — have surged 11-18 per cent in the last five sessions, along with an 8 per cent rise in the Sensex. The effective tax rate for listed paint majors was over 30 per cent in FY19.

In addition,