Thread by @menakadoshi

So companies can now choose which tax bracket they want to be in. 30+% with incentives. Or 22+% without. Or start a new manufacturing company to avail 15% tax rate.

bloombergquint.com/business/finan…

First immediate impact is corporate bottomlines (profitability).
Hence earnings re-ratings.
Stock markets celebrate.
Sensex, Nifty up 6% or so

bloombergquint.com/markets/corpor…

But not all companies will benefit equally (ofcourse)

For instance,

The effective tax rate of Nifty companies on an aggregate basis was 26% which will now come down to 25.17%. - Kotak Securities

There are only 20 Nifty companies which paid more than 30% effective tax rate and accounted for 43% of overall net profit in FY19. Any company paying 33% tax rate will see its earning go up by 12%. Overall, we can see Nifty earnings going up by ~5-6% in FY20..

- Kotak Securities

#2 what will companies do with high profits?
- debt reduction
- new investments
- return to shareholders
- return to employees

sorry, missed one

#2 what will companies do with high profits?
- debt reduction
- new investments
- return to shareholders
- return to employees
- return to consumers

Depending on which company benefits how much and how it uses that benefit, here are some potential outcomes...

- debt reduction will help restore balance sheet health and get companies ready to invest when cycle pick ups

*medium to long term benefit

- ofcourse, new investments depends on capacity utilisation and demand. Both of which are not favourable right now.

- when investments happen that means more jobs, wage impact etc...

*unlikely in the short term, maybe medium to long term...

- returning money to shareholders will boost equity prices, maybe draw in more foreign investment, boost domestic investor sentiment, help companies raise capital...

But how much of that will trickle down to where the economy is really hurting?

*tough to tell

- returning money to employees via higher wages/salaries, like many U.S. corporations did, could have a more direct impact on consumption.

*short term benefit

- returning money to consumers, via lower prices, will boost consumption but is always tricky because raising prices is not an easy strategy ever.

- But companies could deepen festival discounts knowing tax saving will protect bottomline.

*short term benefit

It depends on which company benefits how much and how it passes on that benefit...

FYI, The Trump administration’s tax cuts had little direct impact on business investment decisions, according to IMF study

Read more at: bloombergquint.com/global-economi…

Final thought for now...

WAIT FOR THE FINEPRINT.

Because, as our tax bureaucracy has taught us well, the devil....

And the gazette notification on tax law changes is out...so get reading

egazette.nic.in/WriteReadData/…

https://twitter.com/menakadoshi/status/1175283709907546112?s=19