New start for bloom in Indian economy

The disruptor in Chief has once again done the unthinkable! In a move akin to the 1991 liberalisation in terms of sheer impact it could have on Indian Economy, the Modi Govt has slashed corporate taxes. It was a long standing demand of Indian corporates and Economists but govts. Failed to act on it.

In the 2014 Union Budget, the former Finance Minister, Late ARUN JAITELY had said about slashing the corporate taxes to 25%. He did in bits and pieces but the fiscal position of the Indian economy never allowed him the elbow room to go for it.

Today, when the world Economy is standing at a very precarious situation, trapped in a trade war among largest economies and Indian economy having registered the sharpest GDP decline in over 6 quarters, with sales of Biscuits to cars registering steepest declines, Finance Minister was under tremendous pressure to deliver a stimulus package to revive the engines of growth.

After a few weeks of tinkering here and there, she finally blew the real thunder, slashing the corporate taxes and bringing them at par with major economies. The multiple benefits would soon be visible.

The immediate result would be almost 15-20% jump for all the companies especially in the manufacturing sector where capex is very high. If the corporates reduce their product prices and make them more competitive with their imported replacements and even exports too.

The much needed FDI in the labour intensive manufacturing space would be a major beneficial as such new units would attract only 15% taxes. It is a highly advantageous factor at a time when China is facing the wrath of the US govt. It’s a golden opportunity for India to attract the global industries to set foot here. It will not only bring in the crucial FDI but also generate employment for the masses.

Now, what does this tax cuts do for the Indian equities and Bond markets.

The broader markets which more or less for past 18 months have been under a bear grip. Most of the stocks have lost over70% from their highs during the period. As the benefits of tax cuts start trickle down, the market is anticipating an early and speedy recovery in this stocks. It’s a huge, huge opportunity to enter the markets at this juncture. For last 10 years almost, the markets have not given the super duper returns.

The time has come for equites to fly again.

Happy days are here again!

Nirav Vakharia

Happy days are here again for Indian economy