Mutual Funds

Budget 2020: One for the middle class

Nimesh Shah | Updated on February 02, 2020

Measures ensure that those in the lower income bracket are left with more money

The Budget 2020 can be best described as the budget for the Indian middle class. The government fixed two anomalies through various announcements.

First, by introducing alternate personal income- tax slabs, it ensured that individuals with lower saving ability pay less tax, unlike in the previous tax slabs. Second, the dividend distribution tax is now as per one’s tax slab unlike the previous flat rate, which was burdening to those at the lower tax levels.

These measures should be seen in tandem with the announcement made in September 2019, when the Finance Minister announced corporate tax cuts, that proved to be a sentiment booster for the capital market.

The other major positive was the steps taken by the government to encourage sovereign wealth funds to invest in Indian infrastructure.

This could be a landmark development, given the quantum of funds worldwide, which are currently yielding zero to negative interest rates. So, for a patient investor, infra as a theme, has become attractive.

Overall, the Budget continued with the thrust on agriculture and rural economy, infra, social welfare, healthcare, education, improvement in ease-of- living, better governance through leveraging technology and tax simplification.

The Indian equity market has been resilient even at a time when the global equity markets slumped on fears surrounding the economic impact of the coronavirus outbreak. So, a correction was very likely for the Indian equities and we believe some of it already played out on the Budget day.

Going forward, too, we believe volatility is likely to persist due to a host of global and domestic factors such as the US elections, the US-China trade deal, pace of government reforms and contagion effect of credit concern. The other factor is that the mega-cap valuation continues to be expensive while earnings remain patchy. One has to be cognizant of the fact that in 2019, globally, central bank policies, by way of keeping the interest rates lower, ensured the global markets did well despite fledging growth rates. Given all of these factors, we believe it is best to approach the market through asset- allocation schemes.

Another area, which we believe continues to be attractive, is the accrual schemes.

Our framework signals that accrual schemes, including credit- risk funds and medium-term bond funds, have remained in the ‘buy’ territory with attractive valuations (spread between repo rate) and negative sentiments (NBFC liquidity crunch).

We believe accrual as a space is currently providing good entry points for investors.

The writer is MD and CEO, ICICI Prudential AMC

Published on February 02, 2020

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