Boom! as FM Busts Corporate Tax

Boom! as FM Busts Corporate Tax

“How’s the Josh !?”

Boom! as FM Busts Corporate Tax! ~ Wow! How! Now!?

The effect of Fun & Excitement peaks when the cause is lease expected

Market Sentiment has reversed dramatically & instantaneously!  

BSE & NSE  has seen the Sensex & Nifty created historic surges moving respectively 5.32% & 1921 points up to 38015 & 569 points to 11274 on Friday, September 20, 2019 & even more by 2.83% to 39090 & 11600 on Monday, September 23, 2019 to aggregate a surge of 8.3% in just two trading days with Total Market Capitalisation zooming up in just two trading days by Rs 10,45,700 crs or nearly US $ 150 Billion  to  Rs 148,87,830 crs or near US $ 2.1 Trillion ,thus regaining US $ 2 Trillion Capitalisation quickly ! 

Date Sensex Close Up/(Down) Points, % Approx Total Market Cap
(Rs Crs)
Total Market Cap Up (Down)
Rs Crs, %
Fri, Sept 13, 2019
A Week Before
37385 1,42,42,950
Thu, Sept 19, 2019
A Day before Tax Rate Game Changing Significant Slash Announcement
36093 (1292), – 3.46 1,38,42,130 (4,00,820), -2.8
Fri, Sept 20, 2019
Morning of FM’s Tax Rate Game Changing Significant Slash Announcement
38015 1922, 5.32 % 1,45,34,237 6,92,107, 5
Mon, Sept 23, 2019
On Second Trading Day after FM’s Tax Rate Game Changing Significant Slash Announcement
39090 1075, 2.83 %


2997 in two days, 8.3%

1,48,87,830 3,53,593, 2.43


10,45,700, 7.56 



Wow! How!  Now!?

It took a Government Sacrifice of Rs 1,45,000 crs or US $ 20 Billion in Corporate Tax Revenues to create a 7x sacrifice surge in Market Cap of US $ 150 Billion in just two trading days!

It’s like the Government conceding to the Corporate Sector ” Hey Guys ! we’re transferring our Revenues to you as you’ll can put it to more productive use by funding an Investment Capex Cycle to stimulate more growth for better returns than we can through increased Government Spending “

What is clearly a Market Valuation Re-Rating Move, on the morning of Friday, September 19, 2019 India’s Finance Minister, Mrs Nirmala Sitharaman announced, what should be seen as a forced measure, a Tax Bonanza for Corporates busting the Tax Rate from an effective high of 34.94% for most to an effective 25.168% with no requirement for those who opt for this rate,  to pay the Minimum Alternate Tax which too was slashed to an effective 17% from  the current 18.5%. Another major tax incentive will be a Tax rate of just 15% for manufacturing companies incorporated after October 1, 2019 & who commence manufacturing by March end 2023

Such Tax Rate Cuts & Incentives announcements should have been part of the budget in early July. If one recalls since the NDA came to power in 2014, it’s always been their stated intent to reduce the Corporate Tax Rates gradually to 25%.Economic slowdown is a catalyst to this ‘one shot’ reduction now & that’s why it can be viewed as a forced measure

It’s a ‘No Brainer’ that Markets would instantly turn euphoric as back of envelopes calculations see the Nifty 50 Companies, whose aggregate FY 19 PAT was Rs 370000 crs, benefit by a clean Rs 27000 crs or US $ 3.8 billion in FY 20 on this Tax Rate reduction.Factor in Earnings Growth & the benefit is even higher. 

FPIs who had relentlessly sold US $ 4.5 Billion Equity post budget from early July 2019 have once again began stocking up past two trading days

The ‘Brainer’ is whether such a move will stimulate growth by motivating Corporates to invest the tax savings in capex & an investment cycle which will create a Tax Buoyancy that will compensate year after year for the Rs 145000 crs tax revenue sacrifice the government states it shall incur this year.

Rajiv Kumar of Niti Aayog has opined that the Government will make up this loss of Tax Revenues through higher Non-Tax Revenues. We’ll examine these too a little later below  

But First can this ‘Josh’ sustain into 2020 & beyond?

Sense is Yes ~ Sensex & Nifty will reclaim 40000 & 12000 sooner than later. We’re not too far away from all time Sensex intraday High of 40312 recorded a few months ago on June 4, 2019 ~ Markets are being re-rated on Valuations & Perspectives are shifting again favourably on Potential & Prospects going ahead. Leading FPIs & Major Broking Houses, after having downgraded just last month in August 2019, have once again upgraded their Sensex & Nifty Targets for December 2019 & March & June 2020 which of course are not to high from all time highs already recorded ~ This would be sensible ,given the unbridled optimism they all essayed at the beginning of this year of high Earnings growth in FY 20 ~ This would also sound some caution in the short term on current Indices Levels after this two days surge 

Banking & FMCG Sectors are the major beneficiaries as they were paying Taxes at effective rates higher than 30% while export oriented sectors of Pharmaceuticals & Information Technology will not get any benefit ~ Markets have rewarded & penalised accordingly in the past two trading days

So NOW? will this much brandished target of a US $ Five Trillion GDP by 2024/25 become a reality or will we have to await a year or two beyond this?

It’s being set up to achieve:

  • Lower Repo (currently at 5.40% after RBI has moved it down 1.10 % in a year) that can even go sub 5% soon
  • Lower Lending rates as linked to the lower repo to ensure proper transmission to borrowers
  • Lower Corporate Tax Rates just announced to motivate existing Corporates to fund an Investing cycle to stimulate growth & target new overseas corporates like Apple (they’ve already announced to establish manufacturing base in India) & especially those corporates looking to re-locate manufacturing from China 
  • Lower Rupee as desired to boost Exports

This should revive GDP growth & Inflation with the former moving back towards a real 8% from last quarter’s dismal 5%  & the latter move up past 4% from the current 3.1% to meet the projected nominal GDP Growth rate of  12% .All this should favourably address growing unemployment woes too to an extent

A Lower Rupee can be a bummer for Sovereign Debt. If one recollects how the youngish Chief Economic Adviser to the Indian Government, Mr Krishnamurthy Subramanian ( he took over in December 2018 from another Subramanian, Arvind who had resigned as CEA earlier in 2018 after a near four year stint),voiced in early July post Budget of embarking on increasing Sovereign external Debt as it was even lower than 5% of GDP, & categorically stating a strong appreciating rupee would make the repayment of such debt a win-win situation. Our Rupee ,except for a brief year in 2007 (created chaos in the Diamond Industry especially)  when it appreciated from Rs 49 to Rs 39 to the US $, has always depreciated & currently in the Rs 71 to Rs 71.50 range  to the US $

Lower Interest rates also lowers returns to Investors & Senior Citizens, with nil or negligible earning capacity, especially would face the brunt

Let’s examine how this Corporate Tax Rate slash will impact India’s Tax Revenues & Fiscal Deficit & GDP in FY 20 after India achieved a FY 19 Revised Estimates GDP of Rs 1,88,40,731 crs=>US $ 2635 Billion=>US $ 2.6 Trillion & has assumed a nominal growth of 12% with inflation at 4%

Head FY 20 Budget Estimates in Rs Crs/US $ B
Nominal GDP 2,11,00,607  / 2951 ( US $ 3 Trillion)
Fiscal Deficit 7,03,760  /  98 => 3.3 % of GDP
Sacrifice of Corporate Tax Revenue 1,45,000 /  20
Adjusted Fiscal Deficit 8,48,760  /  119 => 4 % of GDP
Adjusted FY 20 GDP at lower assumed 9.5% nominal growth  2,06,30,600/2885(US$ 2.9 Trillion) 
Adjusted Fiscal Deficit as a % of Adjusted GDP  8,48,760 / 2,06,30,600 => 4.1 %

Government hopes to yet keep Fiscal Deficit as originally targeted at 3.3% of GDP by higher Non Tax Revenues than Budgeted for in FY 20…Let’s have a Look at an extract of the Revenue & Capital Receipts budgeted for  in FY 20 & how the Fiscal Deficit is being funded

Gross Tax Revenues 24,61,195 of which Corporate Tax is 7,66,000,Income Tax is 5,69,000,Customs is 1,55,904,Excise is 3,00,000,GST is 6,63,343,Union Territories Tax is 6948
less Trfs + State’s  Share (2,480) + (8,09,133)
= Net  Tax Revenues 16,49,582
+Non Tax Revenues 3,13,179 of which Dividends & Profits are 1,63,528
=A ~ Total Revenue Receipts 19,62,761
Recovery of Loans 14,828
+Disinvestment 1,05,000
+Borrowing & Other Liabilities (Sources of Funding Fiscal Deficit~ See Table Below)* 7,03,760
=B ~ Total Capital Receipts 8,23,588
A + B = TOTAL RECEIPTS 27,86,349


* Sources of Funding the Fiscal Deficit
Market Borrowings 4,48,122
+Securities against Small Savings 130000
+State Provident Funds 18000
+Internal Debt & Public Accounts 59531
-External Debt (2952)
+Drawdown of Cash Balance 51059
=Original Budgeted Fiscal Deficit for FY 20 703760

Government would be challenged to keep the original Fiscal Deficit target in light of both GDP Growth not achieving the assumed 12% nominal growth for FY 20  & the sacrifice of Rs 145000 crs or US $ 20 billion made on account of just having announced slashing the Corporate Tax Rate by nearly 10% to effective 25.17%

In this context view the unprecedented transfer of Rs 1,76,051 crs or US $ 25 Billion that RBI was induced to make to the Government post Budget in August 2019 of which a portion is out of RBI Reserves of earlier years & which has not been considered in the Budget Exercise. The transfer includes Rs 1,23,414 crs of surplus for 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised economic capital framework.This is thus a Bonanza of Non Tax Receipts for the Government on the shoulders of which it is confident of  not overshooting the Fiscal Deficit…well,if we do then you can bet a part of it will be funded by Sovereign Debt as current budgeted sources for funding the deficit shows there’s huge space here to do so 

But what about next year & the years after ? Will there be a Tax Buoyancy on higher GDP Growth & wider compliance & base ?

Mind you, India continues to be confronted by challenges on the Unemployment & Liquidity front & Banking NPAs & with GDP Real Growth Rate dropping alarmingly to 5.8% in Q4 FY 19 & further lower at 5% in Q 1 FY 20% as slowing Manufacturing  & Consumption affect the numbers & sentiment.The Kashmir Lockdown continues from early August .Globally the threat of looming recession in USA & Europe & vulnerability & volatility of Oil Prices in wake of the recent Drone attack on Saudi Arabian Refineries continue to cause concern.Look for the ‘Turm-Oil’ post next soon.Remember how Oil had zoomed to over US $ 140/barrel in 2008/9 & knocked the socks out of the Indian Economy with fiscal deficit racing away to over 6% of the GDP for two years in a row as India continues to remain import dependent for over 80% of it’s Oil needs

If our Rupee does depreciate beyond manageable levels then we’ll just have to wait longer for doubling our Economy from FY 19 levels of US $ 2.6 trillion to over  US $ Five Trillion even if we achieve targeted nominal growth rate of 12%…flip side if the Rupee appreciates, as our CEA uses as a leg, to go in for Sovereign External Debt we’ll see a US $ Five Trillion Dollar economy sooner

For now raise a Toast to the Markets ! & stick to Core & Quality & if you need to put your neck out for those life changing potential multibaggers, ensure their risk weightage in your Equity Portfolio is in sync with your risk profile


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Daily Bulletin (24th September, 2019)

1.Scrip code : 540545
Name : Bhakti Gems And Jewellery Limited
Subject : Corporate Action- Fixed Record Date For Bonus Issue
Sub.: Intimation for Record Date for Issue of Bonus Equity Shares Dear Sirs, With reference to the captioned subject and pursuant to SEBI LODR and applicable statutory provisions, this is to inform you that the record date shall be 07.10.2019 to determine the name of shareholders entitled for Bonus equity shares in proportion of 15 (Fifteen) bonus equity share for every 100 (hundred) fully paid-up equity share held. In respect of the equity shares held in demat or electronic form, the Bonus Shares will be Credited into respective demat account of allottees through corporate actions as per details furnished by National Securities Depository Limited and Central Depository Services (India) Limited for this purpose. The above disclosures are in compliance with the applicable provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (SEBI LODR) and statutory provisions. Kindly take the same on your record and display on your website

2.Scrip code : 533296
Name : Future Market Networks Limited
Subject : Announcement under Regulation 30 (LODR)-Allotment
Subsequent to Merger by absorption of Star Shopping Centres Pvt Ltd (Transferor Co.) by Future Market Networks Ltd (Transferee Co.),Transferee Co.required to allot its shares to shareholders who holds 40% of paid up share capital of Transferor Co. and 60% of equity capital held by Transferee Co. in Transferor Co. to be cancelled. As per Reg 30 of Listing Regulations,we inform that Meeting of Committee of Directors was held today September 24,2019 & inter-alia considered,issued & allotted following equity Shares to eligible shareholders of Transferor Co. pursuant to the Scheme approved by NCLT in ratio as provided in Scheme viz 12531 equity shares of face value of Rs10 each credited as fully paid up of Transferee Co.for every 100 fully paid up equity shares of face value of Rs 10 each held in Transferor Co.1253100 Equity Shares of Rs 10 each allotted to erstwhile shareholders of Transferor Co. save & except shares held by Transferee Co. in Transferor Co. is cancelled in terms of Scheme.

3.Scrip code : 524084
Name : Monsanto India Ltd.
Subject : Corporate Action-Updates on Amalgamation/ Merger / Demerger This in furtherance to our letter dated September 16, 2019 wherein we had intimated that the Board of Bayer CropScience Limited had approved and fixed September 26, 2019 as the record date for determining the shareholders of Monsanto India who shall be entitiled to receive shares of Bayer CropScience Limited, as consideration pursuant to the Scheme. This is to further inform you that in consultation with BSE Limited via email, Bayer CropScience Limited has agreed to extend the Record Date to Monday, September 30, 2019 (‘Revised Record Date’). Copy of the intimation provided by Bayer CropScience Limited to the Stock Exchange has been attached for your ready reference. This is for your information and record.

4.Scrip code : 535789
Subject : Intimation In Terms Of Regulations 30 And 57(1) Of Securities And Exchange Board Of India (Listing Obligations And Disclosure Requirements) Regulations, 2015, Regarding Payment Of Interest/Principal On Unsecured Redeemable Non-Convertible Subordinated Debt In The Nature Of Debentures (Ncds) Issued By The Company, On Private Placement Basis
Pursuant to Regulations 30 and 57(1) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, we hereby certify that our Company has made timely payment of interest/principal (as the case may be) in respect of the following Unsecured Redeemable Non-Convertible Subordinated Debt in the nature of Debentures (NCDs) issued by our Company, on private placement basis: ISIN : INE148I08132 ISIN Description : INDIABULLS HOUSING FINANCE LIMITED 10.1 NCD 23SP23 FVRS1LAC Corporate Action: Interest Payment Interest / Principal Due Date : 23-09-2019 Interest / Principal Payment Date : 21-09-2019 Listed On : WDM Segment of NSE Please take the aforesaid certification on record.

5.Scrip code : 532541
Name : NIIT Technologies Limited
Subject : Announcement under Regulation 30 (LODR)-Change in Directorate Intimation of approval of members on appointment of Directors under Regulation 30 of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015