Watch out for 2020 Budget

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The general public, view economic contractions as disasters. In a noisy democracy like ours, made worse by the hyper-active 24*7 television news channels and social media, negative news get magnified and a slowdown becomes recession, depression, disaster. The fact is that economic expansions and contractions are normal. There are many theories in economics that explain business cycles. The reasons for economic expansions and contractions can be different at different periods of time. Presently we are going through a normal economic slowdown.

The slowdown is worse than expected

It is a fact that the present slowdown is much worse than expected. It is a fact that almost everyone including institutions rich in economic talent like the IMF and World Bank, and our own CSO and RBI got their growth projections for FY 20 wrong. Growth rate got revised from around 6.9 percent at the start of the year to 5 percent now. A steep downward revision indeed! A combination of factors – the lagged effect of the banking crisis resulting in stress in the financial system, the NBFC crisis, recession in automobiles and real estate segments, poor exports, weak monetary transmission – all combined together to push the growth rate down.

More reforms in the offing

The government has responded with a series of measures. The bold corporate tax cut, relief to real estate, automobile and MSME segments, National Infrastructure Pipeline are all steps in the right direction. More reforms are likely in the Budget 2020. There is no room for a big personal income tax cut, but it has become inevitable after the corporate tax cut.

Capital market taxation is likely to witness reforms with tweaks in DDT and LTCG tax. Strategic disinvestment is desirable and crucially necessary at this point in time. This is almost a certainty in the budget. For achieving strategic disinvestment goals, it is important that the capital market stays buoyant. Therefore, bold capital market taxation reforms are likely in the budget.

Liquidity support from FPIs and domestic investors and expectations of the economy turning around are likely to keep the market buoyant. In the short-term, a lot depends on what the FM delivers in the budget; but a durable bull market will emerge only when growth and earnings revival resume.

Investors are advised to continue with SIPs/ STPs. During the last three to four months we have been advising our clients to invest with additional weightage to mid-caps. This strategy has started yielding results. Conservative investors can invest in balanced advantage funds. 

11 COMMENTS

  1. Apart from Social Media, TV Channels, News Papers and General Public talks about India’s Economic Slowdown, I Suggest it is the time to change the negative thoughts in General Public and to understand or convince the Real Factor of our Country’s Economic Growth among the Public and if we can do such a way then entire human mind will show Positive thoughts of energy.

    • economic scenorio is very bad. Even FM accepts it. Sir Vijyakumar sees only positive. Ask 100 stock investors , they 90% will say lost money. This is the truth. Vijayakumar Sir is a very positive thinker and emanicipate a very good picture but the actual life is different.

  2. Very nicely ,informatively revealed the present financial scenarios. In addition indicate certain remedies to raise the growth rate of the nation, like marginaly reducing the individual tax exemption level in 80c, …..and onwards . Regards

  3. These economic super theorists find out some thing positive to publish. We the general public and small time mediocre investors believe it and invest money and lose it. One day they say some thing. Next day they say the opposite. In the LONG RUN EVERYBODY WILL BE DEAD. it is a saying. But this is the case a universal truth. Invest , Invest ,Invest and lose your wealth. Dont believe in these bickerings. Ask the investors 90% are losers.
    Ask the Geojith clients, 90% wil,l say lost money in stocks. IT IS THE TRUTH.

  4. Sir,
    Apart from stock market, the general economic scenario is very bad. The consumption in economy is going down on month on month. A change in corporate tax rate or few project anouncement at budget will not boost economy in medium term. The real change required is refirms in labour/withdrawl by Govt from business like insurance,banking and non core sectors except defence and reduction of subsidy of all forms. Tax payers money is paid for survival of nationalised banks/Air India PSU undertakings etc. Unless this happens India is failing at policy decision level as far as economy and economic prosperity is concerned

  5. Barring 7 or 8 small economies like Bangladesh, the GDP growth rate of the all the major economies is less than 6%. India being a major economy, its GDP growth of 5% is only next to China’s.
    One should be aware of Global trade impacts that will have a strong bearing on a country’s GDP growth. Nothing can happen if a Prime Minister or a Finance Minister keeps working all the 24 hours on economy. Financial activities are institutionalized in most of the democracies and capitalist countries and or not individual specific. One should try to understand the Classical and Keynesian theories involving GDP growth are cyclic in nature. Where these activities are institutionalized and are not individual specific, it is a matter of time that the economy will bounce back. China’s economy presently is not doing so well as it was a few years back and it doesn’t mean it is not handled properly despite the same President and the system.

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