This article was published by Journal of Chartered Accountants Association in the issue of October 2019. Link to Journal of Chartered Accountants Association, Ahmedabad:  Link to published Article:

Finance Minister announced to cut the Corporate Income Tax Rate to 22% (Effective Tax Rate 25.17%) from 30% for existing firms and to 15% (Effective Tax Rate 17.01%) for new manufacturing firms on September 20th. Government’s move is aimed to promote growth and investment and was applauded by Dalal Street.

Chief Economic Advisor of India Krishnamurthy Subramanian has repeatedly stressed that investment is key to the country becoming a $5-trillion economy by 2025. Logic is simple. Investments create jobs and provide income to people. People spend this money and help other people earn income as well and so on the cycle continues. Investment spending is not only important for long term growth but it is also critical for short term business cycle. Historically as expenditure on goods and services dropped during recessions, much of the drop has been attributed to slump in investments. Global recession of 2008-09 happened because of fall in investments due to credit crunch and low bank lending.

Personal and Corporate Income Tax cut are good fiscal measures to stimulate investments. In USA, President John F Kennedy’s proposal led to substantial reduction in Personal and Corporate Income Tax in 1964. Tax cut was to encourage expenditure on consumption and investment and lead to higher level of income and employment. The tax cut was actually followed by economic recovery marked by increase in GDP of USA by 5.3% in 1964 to 6.0% in 1965 and decrease in unemployment from 5.2% in 1964 to 4.5% in 1965 to 3.8% in 1966. USA President Ronal Reagan again passed major Tax cuts in 1981 and 1986 and similar results were seen. The US real GDP was 3.5%+ in all years from 1983-1989 with marked decrease in unemployment.

The Index of Industrial Production (IIP) fell 4.3% in September 2019 as compared to a contraction by 1.4% in August 2019 mainly due to poor performance in the manufacturing sector. IIP figures are worst in almost eight years and highlight structural slowdown. Consumer Price Index (CPI) Inflation was at 3.9% in September 2019. Rupee appreciated against the dollar in September to close at 70.65 compared to 71.73 in August. Yield on 10-year government bond increased by 14 basis points from 6.56% to 6.70% in September 2019.

 Trends in Capital Markets:
  1. Primary market Update:

During September 2019, there were five public equity issues (all the issues were at SME platform) mobilizing Rs.34 Crore as compared to four public equity issues (including IPO of Sterling and Wilson Solar Limited and IPO of Spandana Sphoorty Financial Limited) mobilizing Rs.4047 crore in August 2019. There was no right issue as against one right issue for Rs.102 crore in August 2019.

 The amount raised through private placement of equity (i.e. preferential allotment and QIP route) stood at Rs. 15,789 crore in September 2019 compared to Rs. 2,265 crore in August 2019. During September 2019, there were two issues amounting Rs.260 crore from the public issue of corporate bonds comparing with five issues amounting Rs. 3,122 crore in August 2019. Private Placement of Corporate Debt reported to BSE and NSE increased by 20.6% to Rs. 48,629 crore in September 2019 over Rs. 40,309 crore in August 2019.

 Funds Mobilisation by Corporates (₹ crore)
 2. Trends in Secondary Markets: a) Capital Markets

Indian benchmark indices Sensex and Nifty50 posted biggest single session gain in last 10 years after Finance minister slashed corporate tax rates.  At the end of September 2019, Nifty 50 closed at 11,474, increased by 451 points (4.1 per cent) over August’s closing. S&P Sensex closed at 38,667 on September 30, 2019, an increase of 1,335 points (3.6 per cent) over previous month. Nifty touched high at 11,600 on September 23, 2019 and Sensex touched high of 39,097 on September 24, 2019.

 The market capitalisation of BSE stood at Rs.147 lakh crore up by 4.4% and the market capitalisation of NSE stood at Rs.145 lakh crore up by 4.3% as on September 30, 2019.

Almost all the sectoral indices witnessed positive trends during the month of September 2019. Among BSE indices, S&P BSE Oil & Gas increased by 11.23% followed by S&P BSE consumer durables (10.5% increase) and S&P BSE capital goods (10.4% increase). On the other hand S&P BSE Realty, S&P BSE Healthcare and S&P BSE IT posted some losses.

Among select NSE sectoral indices, Nifty MNC increased by 9 per cent during September 2019, followed by Nifty FMCG (6.4 per cent), Nifty Bank (6.1 per cent), Nifty Next 50 (4.2 per cent), Nifty 100 (4.1 per cent) and Nifty 500 (4.1 per cent). On the other hand, Nifty PSU Bank decreased by 7.3 per cent followed by Nifty Pharma (6.5 per cent), Nifty Media (6 per cent) and Nifty IT (2.9 per cent).

 b) Corporate Debt Market

During September 2019, BSE noted 3,550 trades of corporate debt with a traded value of Rs. 43,012 crore as compared to 4,175 trades of corporate debt with a traded value of Rs. 58,482 crore in August 2019. At NSE, 5,297 trades were noted with traded value of Rs. 97,677 crore in September 2019 as compared to 6,095 trades noted with traded value of Rs. 1,04,532 crore in August 2019.

 c) Institutional Investments

The mutual fund industry saw a net outflow of Rs. 1,51,790 crore in September 2019 compared to a net inflow of Rs. 1,02,538 crore in August 2019. In the secondary market mutual funds made an investment of Rs. 42,384 crore (Rs. 11,029 crore in equity and Rs. 31,354 crore in debt) compared to an investment of Rs. 67,723 crore (Rs. 17,407 crore in equity and Rs. 50,316 crore in debt) in August 2019.

 FPIs were a net buyer of Rs. 6,582 crore in September 2019 compared to a net seller of Rs. 5,871 crore in August 2019. FPIs invested Rs. 7,548 crore in equity market, withdrew Rs. 990 crore from debt securities and invested Rs.25 crore in hybrid securities during September 2019. As against Rs. 17,592 crore liquidation from equity market, investment of Rs. 11,672 crore in debt securities and Rs. 49 crore investment in hybrid securities in August 2019.

 d) Portfolio Management Services

As on September 30, 2019, AUM of the portfolio management industry increased by 2.1 per cent to Rs. 17.1 lakh crore from Rs. 16.7 lakh crore in August 2019. Of the total, AUM of fund managers of EPFO/PFs contributed Rs. 12.3 lakh crore (i.e., 73.6 per cent of total AUM).

 e) Trends in Substantial Acquisition of Shares and Mergers & Acquisitions:

During September 2019, 12 open offers with offer value of Rs. 1,502 crore was made to the shareholders as against five open offers with offer value of Rs. 4,733 crore made in August 2019. All the offers were for change in control of management.

 Merger & Acquisitions and Private Equity key deals:

Government is considering a proposal to consolidate 10 public sector banks into 4 large ones. This reform was first suggested by Narasimham committee in 1998. 6 weaker PSU banks like Andhra Bank and Corporation bank will be absorbed by 4 anchor banks like Union Bank. The rationale is to improve operating efficiency, accountability and address problem of stressed assets. This move will also create stronger global sized lenders with robust balance sheets. However mergers are inherently time consuming exercise and create number of operational challenges in short term as evident by experience of SBI’s merger with its associate banks in 2017.

 Indianbulls real estate sold remaining 50% of its Mumbai and Gurugram based commercial properties to US based fund Blackstone fund for Rs. 2700 Crore in September 2019.

 Udaan, a Business to business (B2B) commerce platform that facilitates buying and selling of products, has raised over USD 300 Million from a mix of new and existing investors namely Altimeter capital, GGV Capital, Hillhouse capital, DST Global and Lightspeed Venture Partners.

 Sintex group with presence in Textiles and Plastics has sold off its overseas business Sintex NP SAS to Xtech Invest SAS owned by consortium of PE investors for a consideration of €155 Million in August.

 Global Economy Update:

The global economic growth has softened in the 2nd quarter of 2019. According to World Bank, global growth is expected to slow to 2.6 percent in 2019, reflecting weaker-than-expected trade and investment since the start of the year. Subdued investment in emerging market and developing economies is dampening growth aspects. Major central banks across the globe changed their monetary policy stance towards accommodative, on the concerns of slower than expected global growth. US-China trade war appear to have eased as both parties intended to resume talks and delayed increase in tariffs. In political development, tensions in the Middle East surged following attacks on two major oil facilities in Saudi Arabia. This led to surge in oil price by as much as 15% to $69 and then finally subsequently settling at $56.

 The US economy slowed down a bit in the 2nd quarter of 2019, as the GDP grew at an annual rate of 2.0 per cent in Q2 of 2019. The US Fed cut fund rates by 25bps in September 2019, for the second time this year (with policy rate now between 1.75 – 2.0%) on the back of lack of inflationary pressures, slow business investment growth and a struggling exports sector. GDP growth rate of the Euro Area softened to 0.2% in Q2 of 2019 from 0.4% in previous quarter. Japan’s quarterly economic growth was revised lower to 0.3% in Q2 2019 from a preliminary estimate of 0.4%. The Chinese economy has been hit by the ongoing trade war with the US. China’s GDP grew at a pace of 6.2 per cent Y-o-Y during the Q2 2019 which is its weakest in at least 27 years (since 1992).

 Global Equity Markets:

The stock markets indices improved in September 2019 as both developed markets as well as BRICS nations posted positive returns, except the South African Index which fell by 0.8 per cent. Amongst the developed nations, Japan recorded the highest return of 5.1 percent during September while South Korea followed with 4.8 per cent. US S&P 500 posted gains of 1.72% in the month of September.

Acknowledgements: RBI Bulletin ( ), SEBI Bulletin ( ), NSE ( ), BSE (

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