7 Important Budget Expectations of Traders and Investors

The one big event that sets the trend for the stock market during a year is the Union Budget. In year 2019, Indian stock markets are doubly blessed as there will be two comprehensive budgets. The interim budget was almost like a full budget so one can safely speculate that the full budget will be something really big. Here are 7 big things that traders and investors will be looking for in Nirmala Sitharaman’s maiden budget.

Create the right macro environment

Capital markets are always a function of the macro environment. Keeping fiscal deficit in control, spending on value accretive infrastructure and giving a big push to GDP growth are all positives for the market. With GDP growth falling to just 5.8% in the fourth quarter, it is high time the government gives a growth push. This could be a mix of fiscal and monetary measures, but the push from the budget will send the right signal.

Put more money in the hands of investors

For a long time, India has been a story of consumption and that is all about putting more money in the hands of the people. There are a variety of expectations here. Raising the income tax slabs to Rs.5 lakhs, enhancing standard deduction to Rs.1 lakh, expanding the Section 80C limit to Rs.3 lakhs, carving a separate limit for ELSS and expanding the home loan exemption to Rs.4 lakhs are all expectations. The first step to a robust capital market is putting more disposable income in the hands of the people.

Time to get rid of LTCG on equities

When the tax on LTCG on equities was introduced at 10% in Budget 2018, it was estimated to generate revenues of Rs.38,000 crore. With 80% of stocks closing  in losses in 2018-19, the potential tax shields would be more than the taxes collected. The best the budget can do is to scrap the LTCG on equities and especially on equity funds. Why reduce equity returns when these are being used for long term goal planning. Also, the STT is generating $1.2 billion annually and that is good enough. LTCG on equities can be done away with.

Scrap multi-level taxation of equity dividends

This is a major demand for traders and investors. Dividends being post-tax appropriations, are additionally subjected to DDT and taxed at an individual level, if more than Rs.10 lakhs per year. This becomes multi level burden on the shareholder. The budget can retain the DDT and scrap the tax on dividend income. Of course, the DDT on equity fund dividends becomes double taxation and that is unfavourable to those who depend on mutual fund dividends for their regular income.

Make companies attractive with lower taxes

Back in the first budget of NDA 1.0 in 2014, Arun Jaitley had committed to reduce the corporate tax rates from 30% to 25% in phases. Mid way, this was scrapped and limited only to companies with turnover less than Rs.250 crore. India needs reduction of corporate tax rates to 25% and non-merit exemptions can be done away with. In a market where the corporates are struggling with excess capacity and weak revenue growth, a tax relief will go a long way in boosting valuations of Indian companies. Investors will stand to gain in the process.

Time to put the financial sector in order

Financial sector account for nearly 38% of the Nifty weight and therefore they are the fulcrum of the market. No equity rally is possible without a rally in these financial sector. There are two challenges for the budget. Firstly, the financial sector consisting of NBFCs and HFCs are caught in a bind of poor liquidity and high cost of funds. The Budget needs to provide a backup window for the financial players with problems of liquidity but not of solvency. Also the IBC process must be completed rapidly so that banks can recover and improve their balance sheets. Only the financial sector can bring about robustness in the equity markets.

Give big push to infrastructure and housing

While financial sector needs support and rectification, what is the area the budget needs to give a push to? Of course, the infrastructure push must continue with an added focus on infrastructure financing, unique structures, viable business models, attracting global investors etc. But the real trigger could come from housing. Be it low cost housing or mass housing, India really needs a housing revolution if the public wealth has to increase and risk appetite has to improve. This budget could be the right time to take these initiatives to its logical conclusion.