At times the stock market movements are taken to be a vindication of the budget. While this is an extreme view, it cannot be ignored as the entire media is glued to the indices all through the day. Even so, it can be said that the market was virtually agnostic to the announcements by the end of the day even though there were wide gyrations in the interim period.
The NIFTY was marginally down by 30 points while the Sensex was down by 73 points. But the difference between the day’s high and low was 1500 points. Why should this be so? The budget speech started with expenditure outlays and then moved over to the tax proposals. The first part of the budget was generally positive. The focus was on employment, MSMEs, skill creation, inclusive development and so on. In particular, there was an emphasis on the housing sector.
While the proposals were not really new as they have been there for some time, the emphasis and the financial numbers added to the build-up of enthusiasm. The government has not changed the capex target but the fact the focus is on employment and investment means that the backward linkages with sectors was strong. Hence there was positive news for steel, cement, machinery, chemicals etc. where there is a direct link with these outlays. Housing too will be up on the agenda with a focus on affordable housing under the Awas Yojana at both the rural and urban levels. As banks are to be part of all this activity mainly due to the financing that has to be provided, the budget augurs well for all these sectors which should get reflected in the share prices.
As the news gets absorbed, all these sectors should be looked at favorably on the bourses. The point of discontent came when the tax proposals were announced relating to the market. Here there was a mixed bag. The rationale has been to make the system simple and bring about a level playing field. So, the long-term capital gains tax has been increased to 12.5% but this did not go well with the market, to begin with. However, it has been clarified by the FM that this was a way of harmonizing rates as real estate sales/gains would now have lower rates. Besides, it was a small segment with incomes of around Rs 15 lakh per annum which would be affected by this higher rate while the others were affluent anyway. Similarly, the taxing of buyback in the hands of the recipients has been done to bring in equity across different taxes. The higher STT on F & O can be seen as one way of deterring retail participation in this complex segment of the market.
These clarifications had a soothing effect after the initial shock of the announcement effect. In fact one of the biggest pluses for the corporate sector was the reduction of customs duties on a wide set of commodities. These include textiles, minerals, marine products, precious metals, mobile phones, solar energy, medicines etc. Not only will this foster a relatively lower cost economy but reflect in higher efficiency in these industries which should get reflected in business performance.
While it would be business as usual for markets from tomorrow onwards, as players would be waiting for new news to be absorbed, the budget proposals definitely have a positive impact on several sectors which will see higher demand and performance in the coming months. The tax savings at the individual level should also help to increase consumption in the future. Therefore, this should be clubbed under the category of a very progressive budget.
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