The Nirmala put?

The Nirmala put?

Back in the 1990s and Alan Greenspan days, there was something called "Greenspan put".

As the US Federal head, he would cut rates or change policy everytime the market was in trouble. He was responsible for the biggest wealth creation in US and also for the 2008 crisis.
Anyways, the "Greenspan's put" is clearly being played in India now.
Every Friday, Nirmala Sitharaman comes out and does something that will help the market.

There is a clear "Nirmala put" in place now.

For all the memes on her, she is now at par with the best FM of India.

The move to cut Corporate Tax is bigger than MMS's 1991 budget - not for the impact but because it happened when there is no crisis at our doors. That is a critical difference.

Today I am also reminded of the press conference Modi did after the last phase of elections in May where he said people think we do things without planning and “aisa nahi hota hain”.
Looking back it is clear what the govt was planning to do.

There are 3 ways a company invests its extra cash:
1. Dividend
2. Buyback
3. M&A

The govt targeted the dividend and buyback with taxes earlier.
This had a lot of people wondering what the govt is trying to do.
(Buyback is something that is becoming a political topic in US - the US firms are taking on debt at record low levels and buying back shares to prop up the share prices.)
In India companies don’t borrow to buyback and yet the tax was introduced. Dividend is taxed twice. Everyone wondered about this.

With this tax cut, it is clear what the govt wanted.
High dividend tax, high buyback tax, low corporate tax = more money for investments, expansion and M&A.

Clearly this was managed better than most of us ever thought. The ground was properly laid into us to believe the govt has gone bonkers and is anti-business.
The RBI dividend was fixed to fill this year’s fiscal gap. With pessimism all around, the govt kicked this in.

The first term of Modi was plagued with “suit boot ki sarkaar” allegations which pushed him to socialism, with almost destroying the economy with its policies.
This tax cut will never be called “pro rich” or “anti poor”.

This is by design and absolutely not by coincidence.

We are very lucky that we have govt that gets its planning correct.

Even today, the rate cut has finer points that will be critical for the next growth push. 15% life long taxation for next setup is one of them.

Yes the $5T aim is now possible. Maybe be missed by couple of years but will be achieved sooner than most cynics thought.

And finally for all the memes makers - I hope you guys are having a good day today. The govt has outsmarted everyone.

Dayanand Nene

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