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Posted on 30-Jan-2017 Comments  1

Key Expectations from the Union Budget for equity investors…

With the Nifty already at the 8600 levels, the big question is what the equity investors can expect from the Union Budget to be announced on Feb 01, 2017? While there are broad macro level expectations, there are also some very specific expectations from the Budget. Overall, we believe that it could be a mixed bag for equity markets investors…

What can equity investors expect from the Union Budget 2017-18?

  • The theme of the Union Budget is likely to be putting more money in the hands of the people. This will be partially targeted at compensating for the travails of demonetization. More money in the hands of the people will happen through tax cuts, higher exemptions and more liberal tax slabs. This will be positive for consumer facing sectors like automobiles, consumer durables, FMCGs and NBFC companies.                                                                                                                                                                

  • The Union Budget is also likely to focus on the rural population in the form of higher rural spending, greater focus on rural infrastructure and spending more on irrigation and agriculture. This is likely to put more money into the hands of the rural population giving a boost to rural consumptions. Companies that are likely to benefit from a growth in rural consumption will benefit. These include companies insectors like two-wheelers, tractors, farm equipment, agro-chemicals etc.                                  

  • Corporate tax cut could be a game-changer in this budget. The government may look to cut corporate taxes by 2% in this budget. Additionally, the government may also cut the MAT proportionately to make the benefits of the tax cut more meaningful and start impacting immediately. This will be beneficial for companies across the board, especially for sectors with high tax payout ratio.                   

  • There could be a small worry for equity investors in the form of taxation of capital gains. Currently, any equity asset held for more than 1 year is classified as long term. LTCG is tax free while STCG attracts a concessional tax rate of 15%. With Mr. Modi emphasising on the need for equity markets to contribute more to the tax kitty,one can expect some changes. Firstly, the rate on STCG on equities may be increased from 15% to 20% to put it at par with other asset classes. Secondly, the definition of long term may be shifted from 1 year to 3 years, which will be in tune with the long term approach to equity investing that the government is trying to instil in investors.                                                                            

  • The budget may also look to adopt a progressive approach to taxation and penalize high income earners a little more. It may be recollected that last year the Budget had imposed an additional 10% tax on dividends in the hands of HNIs and promoters who earn more than Rs.10 lakhs per year as dividends. One can expect an increase in this rate or probably a full-fledged re-introduction of dividend tax in this budget.                                                                                                                                       

  • This Budget may make an attempt to favour equity mutual funds as against direct equities. The additional tax of 10% on dividends above Rs.10 lakhs per annum last year was only on equities and not on equity mutual funds. We expect that the dividend tax may be imposed on equities and not equity funds. Additionally, the existing benefit for ELSS is clubbed under Section 80C which is quite limited at Rs.150,000/- per year. That limit may either be enhanced or the Budget may look to carve out a separate dedicated limit for ELSS on the lines of the NPS scheme.                                                          

  • Urban infrastructure could be the big theme for the equity markets in the coming budget. The government has already plans to invest heavily in smart cities, inland waterways and urban infrastructure. This push to urban infrastructure will benefit companies in the road building and construction space substantially. They are likely to see expanded order books and robust margins.            

  • Lastly,digitization could be the big theme for the equity markets in the forthcoming budget. The government is likely to heavily incentivize companies that are into digitization hardware, digitization software as well as companies that manage the last mile in the digitization loop. The budget may also look to incentivize companies that shift to digital transactions that leverage on digital. That could be the big theme to watch out for in the coming year.                                                                                           

Overall,we expect the budget to be neutral as far as equity investors are concerned. The markets have already rallied sharply ahead of the Union Budget and therefore the margin of safety may not be too comfortable at current levels. The real story for equity investors may actually be stock-specific. One thing is clear! The big themes of the budget will be the rural push and the big digital play. These themes are likely to throw up interesting opportunities for equity investors and these are the stocks that will be the big focus in the forth coming budget.



Posted on 1/30/2017 5:22:56 PM

Respected sir , I am trading in Navya tradeplus. Company has stopped giving daily trading tips to their clients. On Budget day that is feb 1st alond please provide tips to the clients who doing trading. I am expecting lot of things going to happen that day. So give tips on stock specific and on options. For that day alone. I am expecting company to start trading tips as soon as possible to give them daily. Tahnaking you Regards Bindu




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