A proposal put forward by the Move Forward Party (MFP) to hike the corporate tax rate could cause the profitability of large-cap companies on the Stock Exchange of Thailand (SET) to fall 3.5-3.7%, says DBS Vickers Securities (DBSV).
The MFP, which won 152 House of Representatives seats in the May 14 general election, proposed raising the rate of corporate tax from 20% to 23% for companies generating a profit of more than 300 million baht.
DBSV believes this policy would affect large-cap stocks listed on the SET 50.
The brokerage recommends investors accumulate small and medium-sized stocks with outstanding stories rather than large-cap equities.
"The MFP's policy on reducing taxes for small and medium-sized enterprises [SMEs] and raising the taxes of large companies could significantly affect the stock market," DBSV noted.
"While this policy would help SMEs by reducing taxes, to offset the impact on state revenue the party is proposing a higher corporate tax rate for large corporations."
These policies were among the reasons large-cap stocks stumbled on the SET in the first week after the election, causing negative sentiment among investors, said the brokerage.
Recent data showed foreign investors continue to be net sellers of Thai stocks, both in terms of month-to-date and year-to-date, by 22 billion baht and 86 billion baht, respectively, pressuring the SET index down to around 1,500 points at present.
DBSV adjusted its investment strategy to buy stocks of small to medium-sized companies, or those with a story that can avoid the impact of negative sentiment on the SET, said the brokerage.
In 2022, listed companies on the SET reported a combined net profit of 975 billion baht, down 1.9% from the year before, but total sales surged 32.4% to 17.7 trillion baht, as operating costs increased because oil prices were at a high level.