INSUBCONTINENT EXCLUSIVE:
By Anirudha TapariaFinance Minister Nirmala Sitharaman treaded a fine path by balancing all aspects in the Union Budget
Expectations prior to the Budget were very high
The need for big-bang stimulus to address the economic slowdown was much sought, and on that front, the Budget seemed to be have
disappointed a bit.
We believe the long-term measures taken by the government in several fields are likely to start showing results in the
next couple of years.
Equity: Dips will be opportunitiesLong-term returns in Equity is dependent on earnings growth
Unfortunately, earnings growth has been lacklustre in the past few years
As a result, valuations based on historical P/E multiples continue to appear on the higher side on the back of depressed
earnings.
Valuations based on both forward P/E and P/B basis look slightly more reasonable and are close to the long-term averages
We continue to maintain our slightly underweight stance on equity post the Budget
Any dips would be a good opportunity to add to long-term portfolios
Midcap valuations look fair at the moment and investors can look to allocate money to expert stock pickers who can identify fundamentally
strong companies currently trading at cheaper valuations in this space.
Fixed Income: Stay with high-rated bondsThe market is likely to be
The government loosened its fiscal deficit target and taken deviation of 0.5 per cent consistent as per the FRBM act
The fact that the government restrained from any major populist measure is a major positive for the debt market
by increasing FPIs limit in corporate bonds to 15 per cent from 9 per cent shall boost overall liquidity in the fixed income market
Certain specified categories of government securities would also be fully opened for non-resident investors.
These steps are likely to
assist in developing a deep and liquid bond market
Given the slowdown in the economy and lack of liquidity available to lower rated corporates at this juncture, we would avoid investing in
high credit risk instruments
We continue to recommend investing in funds with high quality credit with short-medium maturity.
Also, tactically, we prefer investing in
long term rolldown funds given the attractive term spread
Hits and Misses:HitsThe Budget provided a relief for the lower- and middle-income groups
For individuals earning less than Rs 15 Lakh, tax burden is likely to come down, which can boost consumption.
The government will grant 100%
exemption for sovereign wealth funds in infrastructure and other notified sectors with a minimum of lock-in of three years
Given that several large wealth funds were looking to invest in India, this decision is likely to give a major impetus to the infrastructure
sector.
The FM announced the abolition of dividend distribution tax and would be now taxed in the hand of the investors instead of the firm
This is likely to encourage companies to pay higher dividends and encourage investments.
Despite pressure from several corners, the
Budget failed to provide any immediate relief to the real estate sector, which has been in trouble for quite some time now
A major worry for most developers has been the lack of liquidity in the sector and the budget did not provide any relief for the same
There was no announcement either to kickstart any demand for real estate (apart from the exemption extension for another year in the
affordable housing category).There was no clear roadmap for the Rs 2.1 lakh crore disinvestment target that the government has proposed for
The overall target of Rs 2.1 lakh crore also seems slightly difficult to achieve (despite including LIC) given that the government failed to
achieve even half its amount in the current financial year.The Budget did not make any mention of land and labour reforms which has been
long overdue.Given that the need of the hour was to revive demand, the Budget failed to take any focused measures for the same.By
introducing a new tax regime and allowing individuals to choose between the old and the new tax regime (without exemptions), the overall
structure has become slightly complicated with a person not familiar with taxation finding it difficult to go through all sections.The
market expected more liquidity support for the NBFCs, which was missing in the Budget.Given that the dividend will now be taxed in the hands
of shareholders, individuals in the highest tax bracket would now have to pay a tax of 43%.(Taparia is Executive Director, IIFL Wealth and
