The Hindu Business Line : Budget View

This year’s Budget is largely neutral from the equity market point of view. The direction of the market, however, is largely going to be guided by global cues. The key thrust areas of investment are agriculture, irrigation, and education, which are medium to long-term positive for sustaining economic growth of 8 per cent. We find the government’s emphasis on the agriculture sector and the loan waiver schemes is designed to address needs of large segment of agri-based community and common populace (aam admi).

On the negative side, the lack of any economic reforms and initiatives in infrastructure segment, barring expression of intention for five further Ultra Mega Power Projects (UMPP) have come as major disappointment. There is a fierce debate on the issue of debt waiver/debt relief schemes announced for marginal and small farmers.

Including this waiver and one-time settlement schemes of other farmers, the total waiver is Rs 60,000 crore (Rs 50,000 crore + Rs 10,000 crore).

Based on the interaction with the PSU Bank’s management it is expected that the government will make budgetary provision to enable banks waive the outstanding amounts. However, post-Budget, the Finance Minister has mentioned a lack of budgetary provision for this populist move, which could expand the fiscal deficit to GDP ratio by 1 per cent.

The increase in personal income-tax slab will save Rs 44,000 – 47,000 as income tax in the hands of the assessee based on their gender (for taxable income up to Rs 5 lakh). This could spur personal consumption, as the disposable income will increase.

The cascading effect of Dividend Distribution Tax from subsidiaries to parent companies has been removed by allowing an offset mechanism. That should help many large corporate as operating subsidiaries are going to be more tax-efficient from dividend distribution point of view.

The measures that have come as a disappointment for the market are 1. Increase in short term capital gains tax from 10 per cent earlier to 15 per cent, and 2. Change of tax status of STT from set-off to income tax to income tax deductible expense item.

While the first factor is overall negative for short-term investors that provide liquidity to market, the second factor is expected to impact the arbitrager’s post-tax income.

Anoop Bhaskar, Head Equity, UTI AMC

The Budget was largely positive for the debt market with the fiscal deficit projections and market borrowings lower than expectations. However, concerns remain on funding of the farm loans waiver and increased outlay for various sectors.

Increased spending plans along with reduced market borrowings could improve systemic liquidity and are positive for debt markets. The efforts to boost consumption through excise duty cuts, increased tax exemptions and measures to boost agriculture could be seen as pump priming.

The proposals to expand debt markets are positive and include launching of exchange -traded currency and interest rate futures, development of a transparent credit derivatives market, enabling investors to trade the embedded equity option in a convertible bond separately and market-based system for classifying financial instruments based on risks and complexity. Liquidity conditions impacted by lower-than-expected government spending in recent times could remain tight due to advanced tax flows. With global interest rates declining in recent months on the back of monetary easing by leading central banks across the globe, we expect interest rates to be steady with a downward bias.

The outlook for long-term bonds remains positive over a 9-12 month period and inflation along with liquidity are likely to drive market direction over the medium term. At this juncture, we believe investors should look at FMPs with double indexation benefits, short-term income funds and long-term bond funds (with appropriate risk profile).

Franklin Templeton Investments

The main levers of the Indian economy are domestic consumption, domestic savings and the infrastructure investment cycle. Public-private partnerships in the domestic infrastructure sector get an additional boost from the increased budgetary outlay.

Also, the announcement of raising the minimum income-iax slab levels is very positive; redeeming significant resources in the hands of individual tax-payers. The increase in short-term capital gains is a positive step taken to make the domestic investors elongate their investment horizons.

Sandesh Kirkire, CEO, Kotak Mahindra

Asset Management

While this year’s Budget had relatively fewer provisions that have a major, direct impact on long-term investors, populist budgets are, in general, viewed as negative by the market, and this Budget was no exception, as evidenced by the subsequent fall. However, this Budget was made against the backdrop of an average GDP growth rate of 8.8 per cent over the last three years. GDP forecasts for next year are still over 8 per cent, and economic fundamentals continue to remain sound. Fidelity encourages investors to take a long-term view.

Fidelity International

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