Union Budget Reaction by CapitalAim

Investors and market analysts were expecting strong reforms or a roadmap for reforms from the new Finance Minister in second term of Narendra Modi government. However, the budget has failed to offer anything concrete about the plans of Modi government to improve economic conditions in India and fuel job growth. Post-budget reaction from Mr. Romesh Tiwari, Head of Research, CapitalAim.....

The budget fell short of expectations of Investors and traders lacking any major steps and a clear action plan for support for the domestic economy. The market immediate reaction is negative due to many factors that remained unaddressed in the budget. Some factors that traders are reacting to are:-

The proposal to restrict the STT to the difference between settlement and strike price will make equity option traders happy with less tax and allow them to lock-in to the gains up to the settlement price of the option. We can see increased volumes in equity derivative trading in near future.

The move to extend the benefit of 25% corporate tax to companies with turnover of up to 400 crores is positive but the market may not react positively to it as it was expected that the turnover limit may be extended to 1000 crores. Although 99.3% of companies will be in the range but compared to corporate tax levels in other economies the market expected us to follow.

Raising minimum public shareholding norms will be negative for several MNC companies who run a closely managed business and reduce the “skin in the game” factor for the promoters of mid and small cap companies. For markets, it may suck the liquidity by making more floating stocks in secondary markets.

Creation of Social Stock Exchange for social organizations to raise capital for their social service venture via equity and debts by issuing unit is a welcome step and we can see a lot more voluntary organizations coming up to serve society. Impact on the immediate market is negligible as need for more clarity on the structure and process will be needed.

On the positive side, the moves to provide access to funds for the fundamentally sound NBFCs was much needed in this liquidity crises in the sector. To bring housing finance companies within the RBI regulations will help standardize and bring transparency in the sector. Removal of “angel tax” hurdle for startups will certainly help them access to funds and hopefully we’ll see a lot more startups that will create many more jobs in various sectors.

Overall the budget is disappointing for the markets and investor will have to wait for more bold steps by the government regarding the economy in the near future.