Shares of HDFC Bank Limited (NYSE:HDB) climbed 9.4% on Sept. 20 after the Indian government surprised investors with a large corporate tax cut.
India is reducing its corporate tax rate from 30% to 22%. The move is intended to help spur the country's economy, which has slowed in recent quarters.
Investors cheered the news. The iShares MSCI India ETF (NYSEMKT:INDA), which tracks 80 Indian businesses that collectively account for about 85% of the Indian stock market's value, popped 5.7%. Meanwhile, the iShares MSCI India Small Cap ETF (NYSEMKT:SMIN), which tracks 267 small-cap Indian businesses, jumped 5.9%.
As India's largest private lender, HDFC Bank is particularly well-positioned to profit from a reduction in corporate taxes. The tax cut is likely to serve as a powerful stimulus for India's economy. Stronger economic growth, in turn, should fuel demand for HDFC's corporate banking, retail banking, and wealth management services.
HDFC is already generating strong growth in several areas of its business. Domestic retail loans grew by 16.5% in its most recent quarter, helping to fuel a 21% increase in net profit.
With India's economy now set to accelerate, investors can expect HDFC Bank to deliver more impressive earnings results in the quarters ahead.