What happened
Shares of India's Tata Motors (TTM) jumped on Friday morning, after India's government announced a surprise tax cut earlier in the day.
As of 11 a.m. EDT today, the automaker's American depositary receipts were up about 10% from Thursday's close.
The electric Jaguar I-Pace has been a rare bright spot in Tata's product portfolio in 2019. Image source: Jaguar Land Rover Ltd.
So what
Mumbai-based Tata is India's largest domestic automaker. The company has a strong presence in mass-market and commercial vehicles under its own brand, and in luxury products via its Jaguar Land Rover (JLR) subsidiary. The company (and its shares) have struggled in 2019: India's economy has slumped, and sales of light vehicles (cars, pickups, and SUVs) in the country are down 15% this year through August. Meanwhile, JLR, a key source of cash for Tata, has continued to struggle in China.
But Tata's shares -- and those of many other Indian companies -- rallied on Friday after India's finance minister announced that the country's corporate tax rate would drop to 22% from 30%, in a bid to jump-start economic growth. The Sensex Index, a market-weighted index of 30 large companies on the Bombay Stock Exchange, closed up over 5% on Friday afternoon.
Now what
India's corporate tax cut will give Tata some additional cash to invest, but it won't necessarily help the underlying problem, namely that Indian consumers are staying away from new-car dealers. Until the country's economy shows signs of recovery, and JLR sorts out its troubles in China, auto investors should probably steer clear of Tata's shares.
