While the Budget making process is in full steam at North Block, the investor community is looking to Finance Minister Arun Jaitley for some incentives to offset the adverse impacts of global volatility. Guest Editor Madhusudan Kela asked Motilal Oswal Joint Managing Director Raamdeo Agrawal what needs to be done to revive the sagging investor sentiment.

Kela: With the kind of volatility we are witnessing in the market, investors have, in the last one-and-a-half years, been kind of losing faith. They are questioning whether it will be a right decision to continue to put money in equities. What is your key message?

Agrawal: We have talked about the market in so many forums and, in any case, we have an understanding of what can happen in the market in the short term. But some other forces you can see when you open the papers today…the Baltic freight index for shipping has moved from 12,000 in 2007-08 at peak to 290, which is a 98 per cent correction. Look at global crude oil, it has corrected from $110 a barrel to $30 and is still struggling.

So the pace of adjustments which are happening is crazy. Even if you look at the dollar movement — it is strengthening against the rest of the currencies like Brazil and South Africa — the way they have panned out currency after currency, country after country. And India luckily, thanks, to whatever policies we have pursued in the last one or two years, is an island of stability. Just as the currency needs to be stable, the stock market also needs to be stable because FIIs and domestic institutional investors have a very large stake in this market — they have about 18-20 per cent of the market with them. In the last three-four years, when the country was not doing that well and we had a policy paralysis, we still got about $25 billion per year because of global macro allocation.

If FII inflows can come when we did not deserve to get, they can also go when we deserve. Can we create counter force? Till now DIIs have been investing. So there was a counter force. But now that is also slowing down. So what we can do to create a permanent counter force? How do we make our equity market attractive?

The Budget is an appropriate time. One thing about capital market is how you treat your dividend. Worldwide, dividend distribution tax (DDT) is double taxation. So we also do the same but we are horrible in that. We charge 33 per cent tax from the honest corporates and after that whatever is paid out again we charge almost 20.5 per cent tax in DDT. Now that is stopping the companies from paying out. I would suggest abolish DDT or bring it down to 5-7 per cent.

Related Topics