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The Corporate Tax Cut is the Tip of the Iceberg. Get Ready for a Bigger Rebound

Sep 27, 2019

Radhika Pandit, Research Analyst

If a larger part of 2019 has been a worrying one for you, it is a feeling well justified. More so, if you are an investor in the stock market.

For most part, the correction in the indices has been relentless, and the gains modest.

However, there were those couple of days when the Sensex recorded large single day gains.

The first was after the exit polls in May. The prospect of Modi coming back into power with a thumping majority fired up the markets.

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The second happened just last week. Finance Minister Nirmala Sitharaman announced a cut in corporate tax rates from 34% to 25%.

That one move was like a much-needed booster shot. It energized the markets, which had otherwise been sagging.

But now there is a million-dollar question in everybody's mind - Is this rebound for real or is it short-lived?

The cut in the corporate tax rates is a good move. The rates are now more or less aligned with other economies. It makes India globally competitive.

If the government executes this perfectly, then it can pave the way for more investments in the country - both foreign and domestic.

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More investments will boost economic growth. This will reflect in corporate earnings growth too.

When corporate earnings grow at a steady clip, stock prices will move up as well. If that happens, then the rebound is not just a one-year affair. It will be more meaningful and long-term.

Now, I have been writing to you about how a rebound would be just a matter of time. So, it is important to take advantage of the market correction.

Buy quality stocks which will benefit greatly from the rebound.

This is what I wrote earlier:

  • Every business has its share of ups and downs and in the same way, the economy too goes through upcycles and down cycles. It is a matter of riding it out.

    Both Sarvajeet and I are of the view that this is a great time to start putting money into quality stocks or increase exposure to the good stocks in your portfolio, if you haven't done so already.

I also talked about how promoters of companies, we have recommended in Smart Money Secrets, have held on to their stakes and not resorted to panic selling.

Super investors have also either held on to their stakes or bought more of the same stocks in their portfolio.

Now, in Smart Money Secrets, the companies we have recommended recently were paying corporate tax to the tune of 34-35%. So, clearly the cut in tax rates will bolster their earnings.

These are fundamentally strong companies with not much debt on the books. They can use the extra funds in the business to fuel growth or pay it out to shareholders in the form of dividends or share buybacks.

I believe, there is still enough opportunities to pick up some quality stocks.

If you do so, you will be well placed for the bigger rebound to come.

Warm regards,

Radhika Pandit
Radhika Pandit
Co-editor and Research Analyst, Smart Money Secrets

PS: Dear reader, Sarvajeet Bodas and I, co-editors of Smart Money Secrets, have recently published our latest stock recommend report. If you don't have access to Smart Money Secrets...sign up here.

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