Divyanshu's Portfolio

Tax cuts will not impact all businesses equally. Yes, it will raise profit margins, but that is also true of your competition, and if the company does not have competitive advantages, competition will eventually lead to passing the benefits to customers.

One can argue that more money in the hands of consumers will boost demand, but that is only if the government also takes measures to control expenses, and hence, fiscal deficit. Otherwise we are just replacing corporate tax with inflation tax and that is even worse for demand. It does not seem government is interested in cutting expenditure, rather it is banking on increased foreign investments, attracted by lower taxes, to fund its deficit. We will have to see how that plays out.

On the other hand businesses with a strong moat can protect the margin gain. That leaves them with more profit in hand which they can invest back for an even better returns. Indeed the market reaction so far supports this thesis.

Luckily, my portfolio is already optimised for taking advantage of this move, except for replacing Drreddy with Bajaj Finance. I have been intending this change (move Drreddy’s allocation to Bajaj Finance) for a long time, and now the timing seems right.

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