Budget 2020-21, built on 3 major themes of Aspirational India, Economic Development and Caring India, is a mixed bag. From the market perspective a positive is the abolition of DDT paid by companies. But the dividend in the hands of investors will be taxed at the applicable rates. This is negative. The highlight of the budget is the proposed IPO and listing of LIC. The proposed sale of government stake in IDBI bank takes the liberalization of financial system forward. The 100 percent tax concession to Sovereign Wealth Funds for investing in infrastructure projects is a clear positive from the market perspective. Opening up of certain categories of government securities to NRI investors and proposals for the deepening the bond market like hiking the FPI limit to 15% are welcome.
Income tax payers will get marginal benefit if they opt for the new IT regime with lower taxes but no exemptions. The new IT regime co-existing with the old regime will make the IT system unnecessarily complex. The new lower rate IT regime without exemptions is a negative for ELSS.
The nominal GDP growth rate of 10 percent for FY 2021 is achievable. Fiscal deficit pegged at 3.5 % for FY 21 doesn’t include the off budget borrowing of entities like FCI.
The market was disappointed that the expected tweaking of the LTCG Tax did not materialize. Also the market might have responded, a bit late perhaps, to the sell off in the US markets on the corona scare.
The impact of the budget on the market will not last for more than a few days. Soon the market will start responding to fundamentals. Investors can utilize the correction in the market to buy quality stocks in performing sectors like private sector banking. Investors are advised to continue investments in SIPs of mid- and small-cap funds since these segments have the potential to out-perform this year. The mid- to long-term trend of the market will depend on capital flows and the recovery in economic growth and corporate earnings.