Budget lacks the spark to ignite the market

The government has kept his fiscal deficit at 3.5 per cent for FY2017. Maintaining fiscal prudence was important to maintain credibility and stability.

By Mahesh Nayak  
Monday, February 29, 2016

The so-called Robin Hood budget was been a non-event for the market. The biggest positive for the market has been the finance minister Arun Jaitley not tampering with the long term capital gain tax (LTCG), service tax and sticking to its roadmap on fiscal consolidation. The government has kept his fiscal deficit at 3.5 per cent for FY2017. Maintaining fiscal prudence was important to maintain credibility and stability.

However increasing securities transaction tax (STT) in options by three times to 0.05 per cent from 0.017 per cent is moderately negative for traders. But not much of an outflow is expected as tax is on the sell value of the premium. For example if you were to buy four lots of Nifty Options at Rs 100, and sold the same back at Rs 100, then the break even on this trade would now be 100.05 instead of 100.017.  

Meanwhile taxing dividend income above 10 lakh at 10 per cent is a dampener. This will slow down inflow of money as well as also see an outflow of funds from the capital market. Second not immediately but with the government waiving off security transaction tax (STT), commodity transaction tax and long term capital gains tax as well as  abolition of dividend distribution tax in International Financial Services Centre (IFSC) in the Gujarat International Finance Tec (GIFT) city will be an dampener to the domestic capital market as it will see an outflow of foreign money when the IFSC comes into operation.

In short the budget was not something the domestic market would cheer about. Though the market would have loved to see an investment led budget, hopes are consumption led budget particularly focus on spending from rural economy and 7th pay commission will push growth and investment benefitting the overall economy. However this would be a slow process. Going ahead equity investors should be cautious and would be better off to wait on the sidelines as the market may remain volatile in the coming few sessions as it would digest and react to the negatives from the Union budget.

Overall due to lack of positive trigger in the domestic market, Indian markets will react purely on global factors. Indian markets are globally integrated and whatever happens in the world will definitely impact India and Indian markets. Now that the event (budget) is over and it has not sparked any positive trigger which could have restricted the outflow of foreign flows, all eyes will be on global events especially issues related to China, Euro-zone, global slowdown due to low crude oil prices, Fed rate hike, geo-political risks and war like situation in Middle East.

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